The Cayman Islands and British Virgin Islands ("BVI") have open, accountable and transparent regulatory systems. Both jurisdictions have promoted transparency regulations and initiatives for years and are signatories to the common reporting standard, a regulation initiated by the Organisation for Economic Cooperation and Development ("OECD"), aiming at preventing tax evasion and leading to a global automatic exchange of information between participating jurisdictions. As a result, Cayman and the BVI have entered into Tax Information Exchange Agreements ("TIEAs") with 31 and 25 countries respectively, including Australia, Canada, China, France, Germany, India, Japan, the UK and the USA. Both jurisdictions are in the process of negotiating further TIEAs with other countries.
The TIEAs are implemented through domestic legislation. In the case of Cayman, this is through the Tax Information Authority Law (2014 Revision) (as amended) ("TIA Law"), and in the case of the BVI, through the Mutual Legal Assistance (Tax Matters) Act 2003 (as amended) ("MLA Act").
A TIEA is a bilateral agreement that two countries enter into in order to establish a formal regime for the exchange of information relating to tax. The OECD established tax transparency standards to facilitate the exchange of tax information and the Cayman Islands and BVI TIEAs are based on the model agreement on exchange of information in tax matters. The TIEAs do not provide for information to be handed over arbitrarily; there are strict criteria set out in the TIEAs and they are not intended to be used for "fishing expeditions".
Noting that the criteria differ according to the terms of the each TIEA as agreed between the Cayman or BVI government and the TIEA counterparty, set out below are the principles that apply to the majority of BVI and Cayman TIEAs, and specifically to requests made of the Cayman or BVI "Competent Authorities", which in the case of Cayman is the Cayman Islands Tax Information Authority ("CITIA"), and in the BVI the International Tax Authority ("ITA").
Criteria for a Request
A description of the nature and specific information sought must be outlined in the request and a standard of "foreseeable relevance" is applied. Under the OECD model, the TIEA is intended to provide for the exchange of information in tax matters to the widest possible extent but, at the same time, to clarify that parties are not at liberty to request information that is unlikely to be relevant to the tax affairs of the taxpayer.
The party requesting the information ("requesting party") must provide the Competent Authority of the requested party with the following information:
- the identity of the person or entity under examination or investigation;
- what information is being sought and for what tax purpose;
- the grounds for believing that the information requested is held, in the possession, or control, of a person within the jurisdiction of the requested party;
- if known, the name and address of any person believed to be in the possession of the requested information;
- a statement: (i) that the request is in conformity with the law and administrative practices of the requesting party; (ii) that if the requested information is within the jurisdiction of the requesting party, its Competent Authority would be able to obtain that information under its laws and administrative practices; and (iii) that the request is in conformity with the provisions of the applicable TIEA;
- a statement that the requesting party has pursued all means available in its own party to obtain the information, save where this would give rise to disproportionate difficulties;
- an undertaking that all information provided in response to the request will be kept confidential as required by law, and will not be disclosed to a third party without the consent of the requested party's Competent Authority; and
- an acknowledgement relating to the form in which the requested information should be provided.
Provision of Information
The information that may be provided includes any fact, statement, document or other record, extends to ownership, identity and accounting information, and includes information held by banks, other financial institutions, nominees, agents, and trustees.
The standard timeframe for the Competent Authority of the requested party to confirm receipt of a request for information is 60 days, and if for any reason the requested party cannot provide the information requested within 90 days, it is required to write to the requesting party, identifying the specific reasons.
Refusal of information by requested party
The requested party can refuse to provide information on one or more of the following grounds:
- if it considers that the information request is not made in accordance with the relevant TIEA;
- if it considers that the requesting party has not exhausted all the methods available under its own laws to obtain the information that is the subject of the request; or
- if the disclosure of the requested information would be contrary to public policy.
Who must comply?
If CITIA or the ITA considers that a request for information is legitimate, that the requested information is foreseeably relevant, and the request otherwise complies with the applicable TIEA, it will issue a notice to the person that is the subject of the request and require that person to provide the information specified in the notice.
To permit the requested party to comply with the timeframes referred to above, the company or individual to whom the request is directed will typically be asked to comply with the request within three or four weeks. However, it is open to CITIA and the ITA to extend the time for compliance.
Both the CITIA Law and the MLA Act give the Competent Authority the right to apply for a search warrant if the person that is the subject of the tax information request does not comply with the notice.
Any information provided by the CITIA or ITA to the Competent Authority of the requesting party must be kept confidential and cannot be disclosed to any other person, entity or authority without the express written consent of the requested party. It may also only be used for the purpose for which it was obtained, namely in connection with the tax matters giving rise to the request.
When can a tax information request be declined?
CITIA and the ITA have the power to decline a requesting party's request for tax information if:
- the requesting party would not be able to obtain the requested information under the laws of its own country;
- any request made by a requesting party is not made in accordance with the relevant TIEA; and/or
- the information requested would cause trade, business, industrial, commercial or a professional secret or trade process information to be divulged, or if confidential communications such as those between a lawyer and its client, would thereby be revealed.
A request cannot be refused on the ground that the tax claim giving rise to the request is disputed.
Both the Cayman and BVI regulations require companies to maintain certain books and records for a prescribed period of time. Accordingly, where either CITIA or the ITA makes a request of a company it will be no excuse that the company has failed to maintain such records.
There is currently limited jurisprudence in Cayman and the BVI which assists in clarifying the scope of the criteria set out above. This is likely to change with the increasing use of TIEAs in light of the move towards global tax transparency. Parties that are requested to provide tax information may provide it without seeking legal advice because they believe that they are required to provide it without question. However, there are restrictions on the tax information requests as set out above and we have been successful in assisting clients to challenge such requests in whole or in part where appropriate. If a party receives a request to provide tax information, advice should be sought from Cayman or BVI Counsel (as appropriate) so that an informed decision can be made on the extent to which that party is obliged to provide information and if so the information which should be provided.
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.