The Cayman Islands Department for International Tax Cooperation has launched an Automatic Exchange of Information portal that allows Cayman’s financial institutions to register and report customer data under the U.S. Foreign Account Tax Compliance Act.
FATCA is a U.S. tax-reporting initiative that forces financial institutions and certain nonfinancial entities worldwide to report bank accounts and ownership interests of U.S. taxpayers or face a 30 percent withholding tax on transactions with the United States.
In December 2013, Cayman signed a FATCA Model 1 intergovernmental agreement with the U.S. which stipulates that entities in Cayman report this information to the Cayman Islands government rather than send it directly to the Internal Revenue Service. The government developed the new website to receive and collect the data from local institutions and then transfer the records to the IRS.
The portal will also enable the filing of tax information in relation to the U.K.’s version of FATCA beginning in 2016 and to other countries that have signed up to the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters and its common reporting standard from 2017.
Minister for Financial Services Wayne Panton said the multilateral exchange of tax information is now a global standard. “It is not one that Cayman is simply adopting on its own initiative.
“Cayman as a player in the world’s financial architecture needs to meet global standards and comply with global obligations. That’s why the launch of this portal is very important to us. We can safely say that we are ready.”
Cayman’s significant role in the international financial system “is evidenced by the fact that we have the highest number of financial institutions that are registered with the IRS under U.S. FATCA,” Minister Panton added.
A total of 28,559 financial institutions registered under FATCA come from Cayman, according to an IRS online database. This means Cayman’s finance industry represents 18.27 percent, or nearly one fifth, of all registered reporting institutions under the U.S. law.
Reporting institutions under FATCA first have to register with the IRS and obtain a Global Intermediary Identification Number before they can register with the new portal and upload their U.S. customer or client data.
Duncan Nicol, the head of the Department of International Tax Cooperation, said the portal was the fourth step taken to comply with FATCA, following the necessary amendments to the Tax Information Authority Law, the issuance of regulations and the drafting of more than 200 pages of guidance notes by the joint ministry and private sector working group as a practical working tool.
As such, the portal does not impose any new requirements on financial institutions, who have known the ground rules in terms of what type of information they have to collect for some time, Mr. Nicol said.
“The portal is a mechanism for them to notify us that they have reporting obligations and it is a mechanism for them to deposit the data,” he said.
The portal, which can be accessed through a link on the Department for Tax Cooperation website, was developed by Deloitte Cayman in cooperation with KirkISS, software firm Vizor (an Irish company with offices in Dublin, Ireland as well as in Ottawa, Canada and Dubai, UAE) and government’s computer services department.
Minister Panton said government had allocated $1.5 million for the development of the portal and that with certain future ancillary costs the project will come in on budget.
“This is simply the cost of doing business,” he said.
The portal is not Cayman’s first foray into the automatic exchange of tax information. Cayman has automatically reported interest income for EU citizens from Cayman Islands bank accounts under the EU Savings Tax Directive since 2005. However, the OECD’s common reporting standard and FATCA will collect much more taxpayer income data and they will be much wider than existing individual exchanges of tax information on request on the basis of bilateral agreements.
“The common reporting standard will become the new global standard for the exchange of information for tax purposes. This does not mean that the method of exchange of information on request will cease in the future. But automatic exchange of information is the standard against which all jurisdictions will ultimately be assessed,” Mr. Nicol said.
More than 90 countries have committed to implementing the new global standard and the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes will establish a peer review process to ensure the implementation of automatic tax information exchange.
Last year, Cayman was one of 51 countries that signed the OECD Multilateral Competent Authority Agreement. The agreement activates the automatic exchange of information based on the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
Early adopters like the Cayman Islands have pledged to work toward launching their first information exchanges by September 2017. Others are expected to follow in 2018.
***Editor’s Note: This story was amended at 5:15 a.m. March 17 to correct the description of software firm Vizor.***