PARTNER CONTENT
Written by: Christopher Capewell, Patrick Head, Ellen O’Brien, and Lisa Page
Maples Group
In October 2024, the Cayman Islands Tax Information Authority (“TIA”) issued a significant number of Common Reporting Standard (“CRS”) Breach Notices to entities that are registered as Reporting Financial Institutions (“Reporting FIs”) on the Cayman Islands Department for International Tax Cooperation’s (“DITC”) Portal, which each omitted to file their CRS return (or CRS Filing Declaration constituting a NIL return, as applicable) and Compliance Form for the 2023 reporting period according to the prescribed annual deadlines.
This round of CRS Breach Notices is contextualised within the broader backdrop of the Cayman Islands’ strong peer review result of developing a robust regulatory environment for entities and in line with such global observations, the TIA’s increasing focus on evaluating the effectiveness of its CRS compliance regime.
The CRS return and Compliance Form filings are important components of the CRS regime developed by the Organisation for Economic Co-Operation and Development and implemented in the Cayman Islands through the Tax Information Authority (International Tax Compliance) (Common Reporting Standard) Regulations (As Revised) (“CRS Regulations”) pursuant to the Tax Information Authority Act (As Revised).
Reporting Obligations Applicable to Cayman Islands Entities
The CRS obligations of an entity vary based on whether it is considered a Reporting FI or a Non-Reporting FI.
Under the CRS Regulations, a Financial Institution (“FI”) broadly includes a “Custodial Institution”, “Depositary Institution”, “Specified Insurance Company” and an “Investment Entity”.
While all FIs (other than an exempted body3) are required under CRS to register on the DITC’s Portal, Cayman Islands Reporting FIs are also required to, for each calendar year:
Make a return to the TIA on or before 31 July of the year following the calendar year that the return relates for each Reportable Account the entity maintained during the prior calendar year setting out the information required to be reported under the CRS; or
If the entity did not maintain any Reportable Account in any Reportable Jurisdiction during the year, make a NIL return, and
Provide to the TIA information reasonably required by the TIA to ensure effective implementation of, and compliance with, the reporting and due diligence procedures in accordance with the CRS by 15 September.
If an entity is not an FI, then it is either an Active or Passive Non-Financial Entity (“NFE”). An entity may be an Active NFE including where it meets any of the following criteria (defined terms have the same meanings as under the CRS Regulations):
Less than 50% of the NFE’s gross income for the preceding calendar year or other appropriate reporting period is passive income and less than 50% of the assets held by the NFE during the preceding calendar year or other appropriate reporting period are assets that produce or are held for the production of passive income;
The stock of the NFE is regularly traded on an established securities market or the NFE is a Related Entity of an Entity the stock of which is regularly traded on an established securities market; or
The NFE is a Governmental Entity, an International Organisation, a Central Bank, or an Entity wholly owned by one or more of the foregoing.
A Passive NFE is an NFE that is not an Active NFE. Altogether, NFEs are not subject to Cayman Islands legal requirements under CRS but may be required by FIs with whom they have financial accounts to provide confirmation as to their NFE status.
Non-Compliance with CRS Reporting Obligations
Given the complexity of the CRS regime, it is understandable that a number of FIs, whether in the Cayman Islands or any other CRS participating jurisdiction across the globe, might not have made certain filings that were due. For example, delays or missed filings might be as a result of:
- changes in the FI’s service providers or internal personnel, and / or unfamiliarity with an entity’s reporting obligations;
- investment funds that had failed to launch or that recently ceased activities; or
- misclassifications of entities that are registered as Reporting FIs on the DITC Portal which are in fact properly classified as Passive NFEs.
- The TIA has proposed a total penalty amount of CI$20,000 for failure to submit the CRS return and CRS Compliance Form by the deadlines specified in the CRS Breach Notices.
Proposed Penalties Require Prompt Remediation of Missed CRS Filings
This round of CRS Breach Notices instructs entities to remediate the alleged breaches through preparing and lodging outstanding 2023 CRS filings on the DITC Portal and to make written representations to the TIA regarding the proposed action, the proposed penalty amount, or both, by deadlines set in late January 2025.
Entities that promptly undertake the remediation steps set out in the CRS Breach Notice and file written representations confirming such action has been undertaken, as applicable, are likely to avoid receipt of a Penalty Notice enforcing the proposed penalty amount.
Entities Should Diligently Lodge Annual CRS Filings to Avoid Non-Compliance Penalties
It is important that FIs continue to be mindful of ongoing obligations such as maintaining and implementing written policies and procedures. Part of the written policies and procedures should document filing obligations including where CRS obligations have been delegated to a third-party service provider.
Generally, entities should remain informed of and uphold the following CRS obligations:
- ensure that entities are accurately classified under the CRS Regulations;
- maintain up-to-date PPoC and Secondary User roles that are responsible for lodging the entity’s annual CRS filings on the DITC Portal;
- ensure that CRS Filings are accurate and complete; and
- de-register entities as Reporting FIs on the DITC Portal in a timely manner including where such entities are inactive / dormant and are no longer conducting relevant activities.
Christopher Capewell – Christopher is global head of the Regulatory & Financial Services practice at Maples and Calder, the Maples Group’s law firm, and is based in the Cayman Islands office. His practice focuses on regulatory matters impacting asset managers, investment funds (both open and closed-ended), banks, administrators, family offices and high net worth individuals. Christopher regularly advises clients on a wide range of regulatory matters including AI, FATCA, CRS, the Securities Investment Business Law, DAC6 / MDR, anti-money laundering and terrorist financing, Economic Substance, cross-border conduct of business advice and the OECD Country-by-Country Reporting regime.
Ellen O’Brien – Ellen is an associate in the Regulatory & Financial Services team at Maples and Calder, the Maples Group’s law firm, and is based in the Cayman Islands office. Her practice focuses on regulatory matters affecting banks, investment funds and trusts. Ellen advises on Cayman Island Monetary Authority inspections and sanctions.
Lisa Page – Lisa is an associate in the Regulatory & Financial Services team at Maples and Calder, the Maples Group’s law firm, and is based in the Cayman Islands office. She provides advice on a wide range of regulatory matters including anti-money laundering and counter-terrorism financing, sanctions, Cayman Islands Monetary Authority licensing and registrations, economic substance, AEOI and data protection.
Patrick Head – Patrick is a partner in the Regulatory & Financial Services team at Maples and Calder, the Maples Group’s law firm, and is based in the Cayman Islands office. Having also been a partner in the Funds & Investment Management team for a number of years, Patrick has extensive knowledge of all regulatory and operational requirements applicable to Cayman Islands investment funds, family offices, high net worth individuals and their managers and advisors. Patrick also has extensive knowledge of FATCA and the OECD Common Reporting Standard being a leading member of the Maples Group’s global team advising clients on the impact of FATCA and CRS since their implementation.
