The US Foreign Account Tax Compliance Act reporting cycle has been running now for two years. As such there is a good level of visibility in terms of how this tax reporting exercise needs to be done and most financial institutions are clear on the definitions used.
But there is now a new tax reporting standard for fund managers to contend with that is global, as opposed to US-centric: The Common Reporting Standard.
Whereas financial institutions previously only had to report the tax status of their US investors, under CRS – of which the US is neither a signatory nor a recognised participating jurisdiction – they will now be required to report on each account holder's tax residency and citizenship status.
"Whilst a lot of the work for FATCA is handled by fund administrators, multinational clients want advice from a centralised adviser with respect to both FATCA and CRS," explains Tim Min, Managing Director, Tax at BDO (Cayman Islands).
"There is greater uniformity among the banks in terms of the documentation they require for FATCA and it appears that the implementation of CRS is going to be a bit smoother because of the experience the industry now has with FATCA filings. CRS is basically a version of US FATCA that now applies to the rest of the world."
So far, more than 100 jurisdictions have committed to CRS, including the Cayman Islands. Financial institutions will need to report all information required under CRS to the Department for International Tax Cooperation (DITC) via the Cayman AEOI Portal. The first notification due date for CRS that fund managers need to be aware of is 30th April 2017. The first reporting due date is 31 May 2017, with annual CRS filings required thereafter.
"We've been helping our clients in drafting memoranda on US FATCA and we are currently doing so for CRS. We have also helped with respect to US and UK FATCA by responding to comments raised in the report filings. If a client doesn't opt to use their fund administrator or registered office then we would provide the service to the client.
"US FATCA will remain outside of CRS but UK FATCA (`CDOT') will transition to the CRS after 2017," confirms Min.
Given that the first CRS filing is less than six months away, Cayman managers should have already started thinking about preparing their first filings.
"If there are any doubts I would advise managers to seek advice as early as possible," says Min, confirming that administrators should have a lot of the information that will be required for the CRS filing, similar to FATCA.
One of the complexities that CRS throws up is where Cayman fund managers have a broad mix of non-US taxable investors that need to be identified and reported on in addition to any US investors under FATCA. This creates a significant tax reporting and compliance burden on all fund managers, irrespective of their AUM.
"It will absolutely mean they have more considerations," says Min.
"It is therefore important for fund managers that the due diligence on their investors is done properly and completely to identify any individuals with dual citizenship, for example, so that the proper tax reporting is done.
"One could end up doing multiple reportings for FATCA and CRS on certain investors. The big challenge is to vet those investors with two or more citizenships," concludes Min.
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