OECD moves to automatic exchange of tax information

Cayman ‘largely compliant’ with current exchange regime

Members of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes established a group to prepare the move to automatic exchange of tax information at the organization’s meetings earlier this month in Jakarta, Indonesia.

The Automatic Exchange of Information group is open to all interested countries. Cayman is a member and Italy was elected chair of the group. The main responsibilities of the group will be to propose terms of reference and a methodology for monitoring automatic exchange of information. The group will also establish a set of criteria to determine when it would be appropriate for jurisdictions to implement automatic exchange considering in particular capacity constraints, resource limitations, the need to ensure confidentiality and the proper use of information exchanged, and helping developing countries identify their needs for technical assistance and capacity.

Until recently the OECD had advocated the exchange of tax information on request as the global standard for tax transparency. Following the introduction of the U.S. Foreign Account Tax Compliance Act and a similar pilot program in Europe, the OECD has renewed its push toward automatic exchange of information.

At the Group of 20 Nations summit in St. Petersburgh, Russia, in September, OECD Secretary General Angel Gurria announced the organization would develop a new single global standard for automatic exchange of tax information and present it to the G20 by February 2014. The technical modalities of effective automatic exchange would be finalized by mid-2014.

In addition to the new group, the 121 Global Forum member countries agreed to continue to monitor the implementation of the transparency and information exchange standards and further develop its terms of reference and review processes.

Cayman largely compliant

The Global Forum also published compliance ratings for 50 countries on the practical implementation of the Forum’s existing information exchange standard.

Eighteen jurisdictions are rated fully compliant. The Cayman Islands is one of 26 jurisdictions that are rated “largely compliant.”

The Phase 2 peer review report on the Cayman Islands released earlier this year only found very limited areas that were not fully compliant in relation to the availability of ownership and accounting information.

The report noticed that in cases where bearer shares are held by recognized custodians outside of the Cayman Islands ownership information on the bearer shares may not always be available in Cayman and it may not be possible to enforce penalties for non-compliance on overseas custodians.

The report further highlighted that the registrar of companies does not have a system of monitoring compliance with ownership and identity information keeping requirements in respect of companies and partnerships. “Whilst legislative amendments have increased penalties for non-compliance, these are untested in practice,” the report said.

The report also criticized that for entities not licensed with the Monetary Authority, no system exists to monitor compliance with accounting record keeping requirements. This would make the legal obligation to keep accounting records difficult to enforce.

As a result Cayman is rated “largely compliant” in two out of 10 categories analyzed by the Phase 2 peer review and “compliant” in the remaining eight categories, according to the Global Forum’s compliance ratings.

“I am very pleased with Cayman’s rating, and with our participation in the Global Forum,” said Minister of Financial Services Wayne Panton. “The overall results of the Peer Review ratings demonstrate that the forum is ensuring proper adherence to the international standard on exchange of information for tax purposes, based an objective and robust peer review mechanism.”

Only six of the 50 countries that have gone through both phases of the peer review were not rated compliant or largely compliant.

While Austria and Turkey are considered partially compliant, four countries – Cyprus, Luxembourg, the Seychelles and the British Virgin Islands – are rated non-compliant with the tax information exchange regime.

Cayman maintains role

At the Jakarta meeting Nov. 21-22, the Cayman Islands was confirmed as one of the vice chairs of the Peer Review Group, and retained its position on the Steering Group of the Global Forum.

“This confirmation recognizes the dedication and value that Cayman has brought to the Global Forum over these past few years,” Mr. Panton said. “While this will mean more responsibility, it demonstrates that our engagement, commitment and hard work are acknowledged.”

The positions were confirmed as part of the periodic rotation of membership in the forum’s Steering Group and Peer Review Group. The rotation will become effective on 1 January 2014.