The OECD's Common Reporting Standard (the "CRS") builds upon the framework introduced by the US Foreign Account Taxation Compliance Act ("FATCA") extending a similar automatic exchange of financial information regime across a broad network of participating jurisdictions. The Cayman Islands has implemented the CRS under the Tax Information Authority (International Tax Compliance) (Common Reporting Standard) Regulations (the "Cayman CRS Regulations") which impose similar obligations on Cayman funds as those imposed under FATCA but also require additional steps to be taken by those funds. The Cayman CRS Regulations also impose obligations on Cayman managers and general partners of investment entities which extend beyond those imposed under FATCA. This briefing outlines the key steps which will need to be addressed by Cayman funds and their managers and general partners in order to ensure compliance with the Cayman CRS Regulations.
The key changes introduced by the Cayman CRS Regulations require:
- all reporting financial institutions including Cayman funds, their managers and general partners to implement written policies and procedures to ensure compliance with the Cayman CRS Regulations;
- Cayman managers and general partners of funds to register with the Cayman Tax Information Authority, to specifically appoint individual points of contact and to notify the authority of their CRS status; and
- Cayman funds, managers and general partner to continue to comply with the Cayman CRS Regulations until their dissolution despite the cessation of any relevant activities or operations during the course of their winding up.
Administrators of Cayman funds are best placed to ensure that the fund complies with its due diligence and reporting requirements under both CRS and FATCA and generally a Cayman fund will have delegated its compliance obligations under these regimes to its administrator. The Cayman CRS Regulations specifically acknowledge that delegation of a fund's obligations will be made to third party service providers but introduce a requirement to specify the extent of any such delegation in the required policies and procedures and to detail and responsibilities which are not delegated and for which the fund retains responsibility. The entry into a delegation agreement for the purposes of the Cayman CRS Regulations will not by itself satisfy the obligation to implement written policies and procedures. As part of their services administrators may offer written policies and procedures which can be adopted by their client funds but where this service is not offered, or not taken up, a Cayman fund will need to ensure that it has its own written policies and procedures in place.
Cayman mangers and general partners will not have any reporting requirements under the Cayman CRS Regulations provided that they are able to make an anti-avoidance declaration to the Cayman Tax Information Authority. Their obligations under the Cayman CRS Regulations in these circumstances are limited to implementing written policies and procedures, authorising points of contact, registering with the Cayman Tax Information Authority and giving the required anti- avoidance declaration. Fund administrators may also be willing to extend their CRS compliance services to Cayman managers and/or general partners and if in that case Cayman managers and general partners will need to ensure that a specific agreement is entered into for that purpose. They will also need to ensure that any gaps in the compliance requirements are specified in their policies and procedures and covered by the manager or general partner themselves.
Where a Cayman fund, manager or general partner is being wound up steps will need to be taken to ensure that the Cayman CRS Regulations continue to be complied with until the final dissolution of the entity either by the continued provision of CRS compliance services by the fund administrator or by the liquidator of fund, manager or general partner ensuring such compliance directly.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
