US FATCA and Cayman Funds: GIIN Registration

2014年 2月 11日

On 29 November 2013, the Cayman Islands government signed a Model 1B (i.e. non-reciprocal) intergovernmental agreement with the United States (the "US IGA").  The US IGA provides a framework for the implementation of the US Foreign Account Tax Compliance Act ("FATCA") in the Cayman Islands.  The process of preparing the supporting Cayman legislation, regulations and guidance notes has now begun in earnest. 

In our previous update of 15 January 2014, we examined the rules relating to entity classification under the US IGA for Cayman-based Investment Entities.  In this update, we consider some of the issues surrounding the registration requirement set-out in the US IGA. 

Fund Industry - Registration 

Under the US IGA, a Cayman Investment Entity which is a Reporting FI is required to register with the US Internal Revenue Service ("IRS") either through the IRS registration portal or through manual submission of Form 8957.  

If successfully registered, a Reporting FI will be issued a Global Intermediary Identification Number ("GIIN").  Obtaining a GIIN is the method by which Reporting FIs demonstrate FATCA compliance as US withholding agents are required to verify the GIIN against lists that will be published by the IRS. 

Non-Reporting FIs (under Annex II of the US IGA) and non-financial foreign entities ("NFFEs") are not required to register and may self-certify their status to withholding agents in order to avoid the imposition of any withholding tax. 

Investment Entities that submit applications lodged before 25 April 2014 will, if approved, appear on a list published in June 2014, i.e. prior to the deadline for the imposition of withholding tax on 1 July 2014. 

Note however that withholding agents are not required to verify GIINs on payments made prior to 1 January 2015 where the payee is a Reporting FI in a Model 1 IGA jurisdiction such as Cayman.  Accordingly, Cayman Reporting FIs can effect registration through to the end of 2014 and, if necessary, may self-certify their status to withholding agents after 1 July 2014 to avoid withholding. 

Cayman Reporting FIs that are (i) maintaining one or more branches (other than a Limited Branch or US branch) in jurisdiction(s) that are not covered by a Model 1 IGA; (ii) renewing its QI, WP or QT Agreement; or (iii) intending to be a Lead FI for one or more Member FIs that are not established and operating exclusively in other Model 1 IGA jurisdictions, should consider registering prior to 1 July 2014 as those components will not benefit from the US IGA and will likely need to be covered by an FFI agreement. 

Register now or wait? 

The Treasury Regulations relating to FATCA continue to evolve and a new set is expected to be published shortly.  It will be noted from our previous update that Reporting FIs can become Non-Reporting FIs if they take advantage of one of the Annex II exemption categories such as sponsored entities and collective investment vehicles.  

Further clarity as to the availability of these exemptions is expected in the updated Treasury Regulations, as well as the Cayman supporting legislation and guidance.  Cayman Investment Entities that wish to avoid registration may therefore wish to hold off until the additional guidance is published. 

It may also be prudent to wait until the Cayman legislation, regulations and guidance notes have been enacted so that any issues in relation to duties of confidentiality and registration with a foreign tax authority can be avoided. 

It is understood that there should be no difficulty in withholding agents accepting self-certification from Reporting FIs until the end of 2014 as they will have to accept self-certification from the many tens of thousands of Non-Reporting FIs and NFFEs globally from 1 July 2014. 

Responsible Officer 

The US IGA makes no reference to Reporting FIs having to appoint responsible officers ("ROs").  Only the GIIN registration application refers to the RO.  The IRS FATCA registration portal guidance and the Form 8957 instructions both state that for Model 1 IGA Reporting FIs, registration is for the purpose of authorising one or more points of contact to receive information related to the registration as well as to obtain a GIIN.  Notably for Model 2 IGA Reporting FIs and (non-IGA) Participating FFIs, both categories of which are expected to have FFI agreements in place with the IRS, the guidance indicates that registration is also for the purpose of confirming acceptance of the terms of the applicable FFI agreement including the on-going compliance requirements set-out therein which specifically refer to responsibilities of the RO.  

While the application requires the RO to certify that the applicant entity will comply with "its FATCA obligations in accordance with the terms and conditions reflected in regulations, intergovernmental agreements, and other administrative guidance to the extent applicable to the FI based on its status in each jurisdiction in which it operates", put in context for a Cayman Reporting FI this should be read to mean compliance with the US IGA and any applicable Cayman Islands law. 

Unlike W8 and equivalent forms, the GIIN registration form is not subject to penalties for perjury which is likely to reflect the fact that FATCA compliance for Cayman Reporting FIs will be driven by Cayman Islands law and not US law.  

The FATCA registration website guidance and Form 8957 also state the term "RO" means the individual with authority under local law to confirm the Reporting FI's status and submit the information provided on its behalf.  Controlling persons (such as directors or general partners) of Cayman based Investment Entities should have, as a matter of Cayman Islands law, the ability (subject perhaps to a board resolution in the case of directors) to confirm the Investment Entity's status as a "Registered Deemed-Compliant Financial Institution under Model 1 IGA" and to submit the registration application.  

Controlling persons (such as directors or general partners) of Investment Entities should therefore be able to nominate/assume the RO role and sign GIIN registration applications.  It is of course still possible to delegate the registration process to a third party providing GIIN registration/RO services. 

Action Points 

If clients require legal advice or have any concerns about FATCA and the US IGA, Maples and Calder have leading expertise on the relevant provisions, having established a FATCA team which has worked closely with the Cayman Islands government over the past two years.

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