CRS and FATCA expert

The new Cayman Guidance Notes: CRS on Steroids?

Peter Cotorceanu Cayman Guidance Notes, CRS

CRS’s global success depends on the integrity of local enforcement, especially in traditional “tax havens”. Cayman’s new CRS guidance notes put its financial services industry on notice that CRS will be enforced vigorously on the Islands.

The new guidance notes were issued on 13 April 2017. They came hot on the heels of the previous draft, which was issued on 3 March 2017, a mere six weeks before the current version. The new guidance notes:

  • significantly broaden the scope of Cayman-resident entities required to register with the Cayman Tax Information Authority (TIA), and
  • require all sorts of documentation not required by CRS itself.

Registration: Pursuant to the recent revisions, all Cayman FIs must enroll or be enrolled on the Cayman reporting portal. This means that Non-reporting FIs such as Trustee-Documented Trusts (TDTs) as well as Reporting FIs must register. In this respect, the guidance notes go beyond what both the Cayman CRS statute and initial version of the guidance notes require, namely, that only Reporting FIs must register.

Requiring all FIs to register also goes beyond what almost every other CRS jurisdiction mandates. Unlike FATCA, with its IRS registration portal and GIIN numbers, CRS itself doesn’t require any FIs to register. As a result, many countries don’t require any FIs to register for CRS purposes. Other countries do require some FIs to register. For example, a number of countries require Reporting FIs with actual reportable accounts to register. Other countries go a step further and require all Reporting FIs to register regardless of whether they have any reportable accounts. But Cayman has gone even further. The new Cayman guidance notes require all FIs to register regardless of whether they are Reporting or Non-reporting FIs and regardless of whether they have any reportable accounts. This means for example, that all TDTs will have to register even though they won’t be filing any reports. (As many of you know, the trustees of TDTs, not the TDTs themselves, file any required reports on behalf of the TDTs.) Given that Cayman is a popular trust jurisdiction, the requirement that all Cayman TDTs register imposes a significant administrative burden on Cayman trust companies who may have dozens, hundreds, or even thousands of such structures on their books.

Perhaps partly because of this burden, a separate recent announcement postponed the Cayman registration deadline from 30 April to 30 June 2017. (The announcement also postponed the 2017 financial account reporting deadline from 31 May to 31 July 2017). Further details on the registration process will be set forth in the Cayman AEOI Portal User Guide, which is expected to be released in the coming weeks.

Documentation: In addition to the expanded registration requirement, the guidance notes impose further structural compliance obligations on Cayman FIs, requiring notably that

  • all Cayman FIs have written CRS compliance policies and procedures
  • all Cayman trustees administering TDTs have written compliance policies for such trusts, and
  • all Cayman FIs that delegate their CRS compliance obligations to third-party service providers have written agreements setting forth the terms of the delegation.

Ouch! None of the above is required by CRS itself. One can understand the Cayman regulator wanting to ensure CRS compliance by Cayman FIs. But this is paperwork overkill. These requirements go above and beyond what Cayman’s peers are requiring. They put Cayman FIs, especially trust companies, at a decided disadvantage to their competitors in other jurisdictions by raising administrative costs substantially.

The Cayman TIA’s strict enforcement goals are laudatory. However, the means used to achieve those goals have left a lot of Cayman trust companies frustrated and wondering why they must go above and beyond similarly placed firms in other jurisdictions. Not without some justification, Cayman trustees are asking whether the Cayman TIA has used an elephant gun to shoot a fly.

The next blog will address another provision of the new Caymans guidance notes, specifically, one that (i) requires all entity “account holders” in FI trusts to be looked through for Controlling Persons, and (ii) treats all protectors and enforcers as “account holders” of FI trusts. Stay tuned.