OECD assesses Cayman’s process to resolve double-taxation disputes

Although the Cayman Islands has no direct taxation, the Organisation for Economic Cooperation and Development has released a peer-review report that evaluates Cayman’s efforts to implement BEPS Action 14, which aims to improve the resolution of tax-related disputes between jurisdictions.

While Cayman does have a small tax-treaty network comprising 10 members, the absence of direct taxes makes it very unlikely that a double-taxation dispute will arise with any treaty partner.

Not surprisingly, the report found that Cayman has no dispute-resolution experience because it has not been involved in any cases.

However, as a member of the OECD/G20 Inclusive Framework on BEPS (Base Erosion and Profit Shifting), Cayman has committed to adopting the minimum standard.

“Overall, the Cayman Islands meets most of the elements of the Action 14 Minimum Standard,” the OECD report found. “Where it has deficiencies, the Cayman Islands is working to address them.”

With the increasing mobility of businesses across borders, disputes over which country can tax certain types of income have increased. Bilateral tax treaties between jurisdictions typically contain provisions determining the process to resolve such disputes.

Article 25 of the OECD Model Tax Convention also contains a mechanism, the mutual agreement procedure, through which contracting states can resolve their differences.

All of Cayman’s tax treaties contain a provision relating to MAP, mostly following the OECD Model Tax Convention. But to be fully compliant with all four key areas of an effective dispute-resolution mechanism under the Action 14 Minimum Standard, the Cayman Islands needs to amend and update two tax treaties, the OECD peer review stated.

“The Cayman Islands reported that it is currently reviewing the possibility to sign the Multilateral Instrument and it intends to amend the tax treaties bilaterally with its treaty partners where necessary. In that regard, it reported that it contacted the relevant treaty partners to discuss bilaterally the possibility of amending the relevant tax treaties,” the report said.

Cayman provides access to MAP in all eligible cases but does not have a documented bilateral notification process for situations in which its competent authority considers the objection raised by taxpayers in a MAP request as not justified. In addition, the Cayman Islands has not yet issued MAP guidance but has submitted its MAP profile, the report said.

While Cayman has not been involved in any tax disputes, the report concluded that “it meets in principle all the requirements under the Action 14 Minimum Standard in relation to the resolution of MAP cases”.

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