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Cayman Islands Opts for FATCA Model 1 IGA

2013年 3月 19日

Executive Summary

The announcement on 15 March 2013 that the Cayman Islands will opt for a Model 1 intergovernmental agreement ("IGA") with the US in relation to the US Foreign Account Tax Compliance Act ("FATCA") is good news for users of Cayman Islands vehicles as a Model 1 IGA will simplify FATCA compliance for a range of Cayman Islands financial institutions that fall within FATCA's scope, including, but not limited to, hedge funds, private equity funds and structured finance and securitisation vehicles. 

The announcement also indicates that a similar simplified approach will be taken by the Cayman Islands in relation to information sharing with the UK.

Action Points

Please check in with your primary adviser on FATCA as to the implications for your organisation's FATCA readiness planning, as a Cayman Islands / US Model 1 IGA should avoid the need for significant numbers of Cayman Islands entities to sign individual agreements with the IRS during 2013.  Foreign Financial Institutions however will still need to register for a single ID called the Global Intermediary Identification Number ("GIIN") by 25 October 2013.

Similarly, please check in with your primary adviser on the UK version of FATCA as a Cayman Islands / UK Model 1 IGA should assist in relation to any reporting obligations otherwise required or anticipated between relevant Cayman Islands entities and the UK Inland Revenue.

For fund clients in particular, where many funds will look to delegate FATCA compliance to their administrator and will be relying on their administrator's processes and systems to ensure compliance, it is also recommended that the relevant fund's administrator is contacted to ensure that the anticipated Cayman Islands Model 1 IGAs are factored into the FATCA planning for those funds.

Cayman Government Release

On 15 March 2013, the Cayman Islands Government issued a press release (the "Release") informing its decision to opt for a Model 1 IGA with the US to improve international tax compliance with respect to FATCA.  A copy of the full text of the Release and the related statement of the Minister for Financial Services can be found here.

Similar Information Exchange with the UK

The Release announced that the decision will also apply to a similar arrangement for automatic exchange of certain information with the UK, which is good news for financial institutions which are in scope for the UK version of FATCA.

Background on IGAs

On 26 July 2012, the US, in conjunction with France, Germany, Italy, Spain and the UK, released a framework for improved tax compliance and FATCA implementation in the form of a model IGA.

IGAs are intended to provide a framework to collect and send information from financial institutions located in the relevant country to their own tax reporting authority which allow them to be exempt from or have reduced obligations for FATCA reporting. 

On 14 September 2012, the UK became the first country to sign an IGA with the US.  Since then, Denmark, Mexico and Ireland have also entered into an IGA agreement with the US in November and December 2012.  The type of IGA that this group signed became known as a "Model 1 IGA".  For Model 1 IGAs, relevant financial institutions will usually not be required to sign an agreement with the IRS but instead report to a competent authority within their own jurisdiction, which will then disclose the information to the IRS under the terms of the IGA.

The US Treasury released the second Model IGA for Cooperation to Facilitate the Implementation of FATCA ("Model 2 IGA") on 14 November 2012.  While the definitions are substantially similar to those in the Model 1 IGA, the Model 2 IGA relies on the FATCA regulations in many instances and addresses compliance in a different manner.  Switzerland remains the only country to have signed a Model 2 IGA, which will still require relevant financial institutions to sign up to individual agreements with the IRS.

Timing

The Release refers to "productive" discussions with the US since 2011 and with the UK since 2012, and states that the Cayman Islands Government "expects negotiations toward a Model 1 IGA to conclude quickly".

Maples and Calder's View

Maples and Calder has been heavily involved in the consultation process in relation to FATCA, participating through its involvement in the Cayman Islands chapter of AIMA, through its board membership of Cayman Finance and through heading up the joint Cayman Islands Law Society/Bar Association/Compliance Association committee on FATCA.  

Jon Fowler, Global Head of the Maples Funds Group, commented that:

"Given Maples and Calder's significant involvement in the Cayman Islands aspects of FATCA to date, the Government's decision is extremely welcome.  Dealing with the challenges presented by FATCA is a major component of the increasingly complex compliance matrix that our clients are having to negotiate at present, and will be a key client concern in Q3 and Q4 of 2013.  The simplification of the immediate FATCA driven obligations for clients using Cayman Islands vehicles is very good news, and reaffirms the Cayman Islands' position as a jurisdiction at the forefront of global initiatives on transparency, cooperation and compliance."

For further information, please contact any of the individuals listed above.


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