The Cayman Islands and the US have officially signed an agreement that paves the way for the automatic exchange of tax information under US FATCA.
The two governments also signed a new tax information exchange agreement (TIEA), which replaces the original TIEA signed in 2001. The new TIEA stipulates the legal channels through which information will be automatically exchanged.
FATCA, or the Foreign Account Tax Compliance Act, is a US tax-reporting initiative, developed to assist the US Internal Revenue Service in preventing tax evasion by US persons living overseas.
Cayman has signed a FATCA Model 1 intergovernmental agreement (IGA); this enables financial institutions in Cayman to directly report information to Cayman’s Government regarding accounts and non-financial entities that are substantially owned by US citizens and residents. Government will then relay the information to the Internal Revenue Service IRS.
The signing was held in London, immediately after Cayman officials participated in the UK’s Joint Ministerial Council of Overseas Territories. Signing the documents were Cayman’s Minister of Financial Services, Wayne Panton; and the US Embassy in London’s Minister-Counselor for Economic Affairs, Julie Nutter.
“By working together to detect, deter, and discourage offshore tax abuses through increased transparency and enhanced reporting, we can help build a stronger, more stable, and accountable global financial system,” Nutter said. “We look forward to collaborating with the Government of the Cayman Islands to further these objectives.”
Minister Panton acknowledged the support of Cayman’s financial services industry in deciding that a Model 1 IGA was the best option for Government to pursue. The second option for a FATCA IGA, known as Model 2, requires financial institutions to report directly to the IRS.
“With a Model 1 IGA, Government’s Tax Information Authority will implement the standardised data-reporting framework for FATCA,” he said. “This should help to defray administrative costs for financial institutions.”
Minister Panton also noted that the FATCA Model 1 IGA is poised to become the global standard for multilateral automatic exchange.
“Signing these agreements clearly demonstrates that both Cayman and the US are committed to the stability and growth of global financial services, which contributes to stability in our country’s economies and increased opportunities for our people,” he said.
Gonzalo Jalles, CEO of industry group Cayman Finance, noted that FATCA requires financial institutions to register with the US Treasury and, in accordance with the IGA, agree to report certain information about their account holders. Treasury will open the registry portal this January.
“Industry is pleased that Government consulted them on which IGA to pursue, and that our recommendation for a Model 1 was accepted,” he said. “We look forward to seeing the final IGA, as industry continues to prepare for the FATCA implementation process.”
As part of that process, Jalles said that Cayman Finance, in collaboration with the Ministry of Financial Services, has organised a full day’s seminar in January to cover the registration process in detail, along with other international taxation topics. Furthermore, Minister Panton said that Government is setting up a working group to handle the detailed legislative framework and implementation matters.
Panton, commenting at the signing, said that after three years of negotiations he congratulated both countries' negotiation teams for ensuring that these agreements fulfil “not only the letter of FATCA, but also the spirit of global efforts on transparency and exchange of tax information – which is to vigorously fight tax evasion.”
He continued: “While the benefits for the US economy are clear, some may ask, what are the benefits for Cayman's economy? Again, the answer is clear. Our participation in globally accepted transparency and tax information exchange initiatives speaks volumes of our financial services integrity, and that leads to the confidence and trust that investors continue to have in us.
“Today, Cayman is the first Overseas Territory to sign a FATCA agreement with the US. But for those who may not know, the Cayman-US collaboration in the fight against financial crimes is not a recent phenomenon.
“In fact, the TIEA we are signing today replaces the original agreement we signed back in 2001. Furthermore, it complements initiatives such as the Mutual Legal Assistance Treaty, which we signed more than two decades ago, in 1990. We are therefore well aware of the benefits such agreements have for both of our countries.”
Cayman, US, FATCA, Julie Nutter, Wayne Panton