The Cayman Islands Government (CIG) has concluded negotiations with the US on a Model 1 intergovernmental agreement (IGA) and a new tax information exchange agreement (TIEA).
The agreements pave the way for automatic exchange of information (AEOI) under the US Foreign Account Tax Compliance Act (FATCA).
Both governments have initialled the agreements, to indicate their intent to sign them; they also have noted that the official signing will be held as soon as possible, after which the texts will be publicly available.
The benefits of the Model 1 IGA for foreign financial institutions in the Cayman Islands is that it will streamline, through the CIG, the reporting of information regarding accounts and non-financial entities substantially owned by US citizens and residents. The CIG will then relay the information to the US Internal Revenue Service.
Industry also will benefit from CIG managing the implementation of a standardised framework for the reporting of data, as the FATCA model is likely to be adopted as a broader template for multilateral AEOI in the future. Having a standard mechanism for reporting to Cayman’s Tax Information Authority, which is the sole channel in the Cayman Islands for the provision of tax-related information to other governments, is likely to reduce the administrative costs that would result from foreign financial institutions (FFIs) having to collect and transmit data to other governments on their own.
Cayman’s minister for financial services Wayne Panton says CIG is pleased to have arrived at this milestone, which recognises that the global community is moving in the direction of one AEOI standard for tax purposes.
“As an international financial centre (IFC) that contributes to the efficient functioning of global markets, the initialling and subsequent signing of the IGA and new TIEA with the US will again demonstrate Cayman’s commitment to engage in globally accepted tax and transparency initiatives,” he says.
US Treasury deputy assistant secretary (international tax affairs) Robert Stack says the Model 1 IGA and new TIEA will effectively combat tax evasion and improve compliance through increased transparency, mutual cooperation, and the automatic exchange of information.
“Cayman has had a longstanding relationship with the US regarding the exchange of tax information, dating back to the original TIEA that was signed in 2001,” Stack says. “Cayman also consistently demonstrates leadership in transparency matters through its global engagement, including its work on both the Steering Group and the Peer Review Group of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes. We are especially pleased that the conclusion of an IGA will provide certainty to Cayman’s significant fund industry with respect to FATCA implementation.”
“This has clarified the way forward, in order for industry to progress with the implementation,” says Cayman Finance chief executive Gonzalo Jalles. “We are particularly thankful to government for including Cayman Finance and the broader industry in the consultation process, and commend them for ensuring that we remain a well regulated and transparent IFC.”
Following the signing with the US, the CIG will have further discussions with the UK’s HM Treasury in order to finalise the terms of the UK Model 1 IGA FATCA agreement.