Still work to be done on tax information exchange

Peer Review notes well developed framework, some shortcomings

A meeting of the OECD Global Forum
on Transparency and Exchange of Information in Singapore on 30 September
presented the first mutual evaluation report of Cayman’s compliance with OECD
standards governing the exchange of tax information.

While the Cayman Islands Peer
Review Report identified a generally “well developed legal and regulatory
framework” in the Cayman Islands, it also highlighted several shortcomings and
made recommendations how these should be addressed.

After an initial approach of
encouraging states to sign tax information exchange agreements in order to promote
tax transparency, the OECD has now moved to verifying whether these agreements
actually work in practice. Mutual evaluation reports assess in three main areas
whether the necessary laws, regulations, mechanisms and procedures are put in
place to ensure that relevant information is available, that this information
can be accessed by a competent authority, such as the Cayman Islands Tax
Information Authority, and that the information is effectively exchanged in

The Cayman Islands was among the
first eight countries worldwide to be assessed under the Global Forum’s Peer
Review Programme. The report’s finding were approved at a Peer Review Group meeting
in July and adopted at the Singapore meeting last week.

Under the OECD framework
jurisdictions are required to ensure that ownership and identity information is
available to the competent authorities. Although this element has been largely
implemented in Cayman, the report said certain aspects could be improved.

The report specifically highlighted
that in some cases there are currently “no penalties for non-compliance with
obligations to maintain ownership and identity information in the case of companies
and partnerships”.

The report said this was of
particular concern in respect of approximately 3,000 unregulated mutual funds
which may manage a significant total asset value and recommended to introduce
effective sanctions against companies and partnerships.

The availability of identity and
ownership information was also not consistently ensured with regard to Private
Trust Companies and individuals who act as trustees.

A further requirement that ensures
that reliable accounting records are kept for all relevant entities is
currently not in place in the Cayman Islands, the report noted.

There is no requirement for the
more than 90,000 companies registered in the Cayman Islands to maintain
accounting record for a minimum five years, the report stated, nor were there
consistent obligations on partnerships and trusts to retain relevant accounting
records. Where there are obligations to keep records, no penalties exist in
some cases to enforce the requirement.

In an official response annexed to
the report the Cayman Islands Government responded to the findings, saying that
it demonstrated the significant strides that had been taken towards
transparency and international cooperation. The government acknowledged certain
“gaps” with regard to provisions ensuring the maintenance of accounting records
by relevant entities, but also criticised the inconsistent application of the
Peer Review Group’s terms of reference on this point by assessment teams across
different jurisdictions. 

However, in his address to the
Global Forum in Singapore Premier McKeeva Bush informed the Forum members that
“the Cayman Islands government had taken immediate steps to address the areas
for improvement identified in our Peer Review Report”.

Mr. Bush said on 15 September he
had piloted through parliament amending legislation governing all forms of companies
and partnerships, stipulating a five-year minimum retention period for relevant
accounting records and underlying documentation. “Similar legislative
amendments in relation to trusts are being finalised for presentation to our
legislature and will be presented in November 2010, at the latest,” Mr. Bush
announced. In addition each piece of amending legislation includes provisions
for enhanced sanctions for companies, partnerships and trusts, where they fail
to comply with record keeping requirements, he said.

As far as banking information is
concerned the Cayman Islands has put all the necessary elements in place,
according to the assessment.

Out of a total of ten assessed
issues, Cayman had met the Global Forum requirements in seven, partially met
them as far as the availability of ownership and identity information is
concerned and not yet implemented the necessary element with regard to the
maintenance of accounting records. A final point determining the timeliness of
the information exchange will be assessed in a second phase of the Peer Review