The Cayman Islands Directors Association said a survey of its members on which Foreign Account Tax Compliance Act reporting model should be adopted by the financial industry in the Cayman Islands showed an overwhelming support for FATCA IGA Model 1.
Under FATCA, foreign financial institutions are expected to sign an agreement with the United States Internal Revenue Service identifying any US person accounts and to report certain information on an annual basis. In addition, both US and foreign financial institutions will be required to report details to the IRS regarding substantial American owners of non-financial foreign entities unless an intergovernmental agreement is signed.
The Cayman Islands government has been offered two versions of an IGA. Under Model 1 foreign financial institutions will report to the Cayman Islands government, which then relays the requested information to its US counterpart. The Model 2 agreement in contrast requires foreign financial institutions to enter into direct agreements with the IRS and file reports directly with the IRS.
Paul Harris, president of the directors association, said the survey was undertaken as government’s FATCA task force had asked CIDA to express a preference. Mr. Harris added that it was beneficial to gauge the preferences in the financial industry.
The Model 1 intergovernmental agreement has the benefit that FFIs would report to the Cayman Islands government rather than having to deal directly with the IRS, including the need to enter into an agreement with the IRS, Mr. Harris said.
Some thought it likely that fund managers and other offshore users would prefer to deal with FFIs that do not report directly to the IRS, but instead to the government in the country in which they are located. There is the possibility that they may relocate to Model 1 jurisdictions if Cayman is not Model 1, CIDA noted.
The Cayman Islands Directors Association is an association with more than 200 members in the Cayman Islands who are directors of one or more Cayman Islands registered companies. Although the majority of members focus on providing corporate governance to hedge funds, the association is comprised of all sectors of the fiduciary services industries from family companies to large financial service providers.