The Cayman Islands Economic Substance regime – further developments
The Cayman Islands government recently published a Bill to supplement the economic substance law. The contents of the Bill reflect feedback received from the EU Commission and the FHTP Secretariat.
The Bill introduces the following new provisions:
- a general anti avoidance rule
- the ability for the Tax Information Authority (TIA) to impose a fine where a relevant entity that is required to satisfy the economic substance test fails to prepare and submit to the TIA its annual report within the specified time - the proposed penalty is CI$5,000 with an additional penalty of CI$500 for each day the breach continues
- appropriate functions and powers for the TIA to monitor and verify outsourcing of core income generating activities entities
- the requirement that all entities file a notification, even if not a relevant entity
- details of the information that must be provided to the TIA where an entity claims tax residence outside the Cayman Islands (information on the immediate parent, ultimate parent and ultimate beneficial owner of the entity) and the requirement that the TIA exchange that information with the relevant overseas authorities
For information, the OECD has published Guidance for the Spontaneous Exchange of Information. The Cayman Island rules are currently being drafted, in conjunction with the development of the reporting system, and will be published in due course.
At the same time as the Bill was published the Cayman Islands Department for International Tax Cooperation released a draft version 3 of the Economic Substance Guidance Notes. The draft includes sector specific guidance which will be a useful resource for many entities, once approved.
Both the Bill and the draft Guidance Notes were published to seek industry comment at the outset and both are in draft form, so there is a possibility that amendments may be made before the final versions are approved.
For more information, please contact your usual Harneys contact.