FATCA: next steps and focus for 2015

The Position to Date

In July 2014, the Cayman Islands government issued The Tax Information Authority (International Tax Compliance) (United States of America) Regulations, 2014 (the “US FATCA Regulations”), The Tax Information Authority (International Tax Compliance) (United Kingdom) Regulations, 2014 (the “UK FATCA Regulations”) and the Guidance Notes on the International Tax Compliance Requirements of the Intergovernmental Agreements between the Cayman Islands and the United States of America and the United Kingdom (the “Guidance Notes”), in each case to accompany The Tax Information Authority Law (2013 Revision).

This new legislation seeks to address sections 1471 to 1474 of the US Internal Revenue Code of 1986, commonly referred to as the US Foreign Account Tax Compliance Act or ‘FATCA’, and equivalent tax information exchange obligations currently agreed with the United Kingdom.

For the second half of 2014, Cayman Islands domiciled entities have largely focused on determining their correct classification for the purposes of the UK FATCA Regulations and the US FATCA Regulations (together, the “Regulations”). Those entities falling into the category of Reporting Cayman Islands Financial Institutions (each a “Reporting FI”) should have been undertaking registrations with the United States Internal Revenue Service (the “IRS”) to obtain a Global Intermediary Identification Number (“GIIN”), and also implementing procedures to identify customers who may qualify as ‘Reportable Accounts’ under the Regulations. Investment funds have been updating offering materials to include FATCA related disclosures, and subscription documents to include applicable self-certification forms.

Any Cayman Islands entity that has not yet finalised its classification under the Regulations or, where applicable, completed its GIIN registration, is advised to contact a Walkers attorney as a matter of urgency.

In order to remain compliant with Cayman Islands law, a Cayman Islands entity that qualifies as a Reporting FI must have applied for a GIIN by no later than 22 December 2014.

Focus for 2015

Now that the entity classification and initial GIIN registration phase has largely been completed, entities classified as Reporting FIs need to turn their attention to reporting under the US FATCA Regulations which will commence in May 2015 in respect of the 2014 calendar year. Reporting under the UK FATCA Regulations will commence in May 2016 in respect of the 2014 and 2015 calendar years.

As a first step, Reporting FIs are required to register with the Cayman Islands Tax Information Authority (the “TIA”) by no later than 31 March 2015* to enable them to comply with their reporting obligations in 2015. FIs will be able to register with the TIA via a new online portal which is expected to be opened in early 2015. The TIA has also announced that it will publish the reporting template in early 2015 – further advisories will be issued on the reporting template by the Cayman Islands government in due course.

Reporting FIs need to conduct due diligence on their account holders to establish which accounts are ‘Reportable Accounts’ and, in turn, by what date reporting needs to commence in respect of such Reportable Accounts. It is important to note that even where no US Reportable Accounts have been identified during 2014, a Reporting FI will still need to register with the TIA in order to file a ‘nil report’ by the 31 May 2015 reporting deadline.

The vast majority of investment funds have outsourced the due diligence and reporting process to their administrator or one of the many other third party service providers who are offering FATCA ‘data scrubbing’ services. Accordingly this memorandum does not address identification of Reportable Accounts or the reporting deadlines in any detail. If you have any questions in this regard, please contact your usual Walkers attorney, or one of the partners below, who will be happy to explain the relevant requirements.