Under the agreement, financial institutions in Cayman will report to the Cayman government information on financial accounts that are substantially owned by individuals with U.K. tax-reporting obligations. The government will then forward the information to the U.K.
Cayman Islands Premier Alden McLaughlin said steps to establish the legislative and operational framework to implement the agreement are under way, and government intends to issue guidance to assist with the implementation.
“Entering into this agreement with the U.K. builds on our shared history of cooperation in tax and transparency matters. Furthermore, it strongly indicates our mutual support for a single, global standard for the automatic exchange of information,” he said.
In September, the G-20 supported the OECD in presenting a single global standard for automatic information exchange by February 2014, and in finalizing the technical implementation aspects by mid-2014.
“While the pace of dialogue has quickened considerably in recent months, the acceptance of automatic exchange as the most effective way to combat tax evasion is the result of decades of global discussion regarding tax transparency,” he said. “This approach also will minimize operational costs for governments and business.”
Cayman’s Financial Services Minister Wayne Panton added that Cayman and the U.K. have agreed to monitor the outcomes of the intergovernmental agreement to ensure that it remains effective against tax evasion, and that it does not add undue compliance costs for financial institutions.
Mr. Panton said the agreement contains details of the alternative reporting regime for U.K. resident non-domiciled individuals. The agreement was signed by the premier and Overseas Territories Minister Mark Simmonds.
“This is a momentous step forward in tax transparency, and a tribute to a close working relationship between the U.K. and the Cayman Islands,” Mr. Simmonds said.
The purpose of the agreement is to ensure an automatic exchange of information that relates to potential payment of taxation between the Cayman Islands and the United Kingdom, he said. “Now that doesn’t mean that prior to the signing of the agreement that the information wasn’t provided, but it wasn’t provided on an automatic basis.”
The agreement is comparable to the U.S. Foreign Accounts Tax Compliance Acts, which seeks similar information about U.S. taxpayers. However, different reporting and tax rules apply to U.K. citizens depending on how much time they spend in the United Kingdom.
If someone is based in the U.K. but has resources or money offshore, they are bound to pay United Kingdom taxes on the full amount of their international income.
U.K. Chancellor of the Exchequer George Osborne also welcomed the signing, saying the agreement “demonstrates our shared commitment to tackling tax evasion.”
“Alongside the significant investment that this government has made in HMRC’s anti-avoidance and evasion work, these agreements will help them to clamp down further on those individuals who seek to hide their assets offshore. Our message is very clear: it is only fair that people pay the tax they owe. If you are trying to evade tax, we are coming after you.”
Cayman Finance said the agreement reinforces Cayman’s reputation as a well-regulated and transparent international financial center. Cayman Finance CEO, Gonzalo Jalles, said “we look forward to learning more about the details of this agreement, its implementation and its reporting implications.”
Convention on Tax Assistance extended to Cayman
In another development promoting tax information exchange, the U.K. has extended the OECD/Council of Europe Convention on Mutual Assistance in Tax Matters to the Cayman Islands.
The Cayman Islands government had formally requested this step in August and Cayman will be party to the convention from Jan. 1, 2014.
“For the continued vitality and growth of Cayman’s industry, it’s an advantage to remain aligned with global movements in the direction of automatic exchange of information,” Mr. Panton said, noting that more than 50 countries currently adhere to the convention.
The convention is a multilateral instrument, designed to combat tax evasion and aggressive tax avoidance by allowing member states to assist each other in tax matters. Administrative assistance can range from the exchange of information for tax purposes to the serving of documents.
In line with common practice, Cayman was permitted to opt out of certain non-core aspects of the multilateral convention. Cayman will not handle matters related to requests for the recovery of foreign tax claims or exchange of information regarding local taxes and social security contributions.