The importance of the Common Reporting Standards to Cayman Islands entities – What to do and when to do it

Under this provision of the CRS Regulations, each FI shall, for each calendar year:

1. Make a return to the DITC for each Reportable Account the FI maintained during the year setting out the information required to be reported under the CRS – this is the CRS return; or
2. If the FI did not maintain any Reportable Account in any Reportable Jurisdiction during the year, make a nil return.

The FI will need to provide to the DITC information reasonably required by the DITC to ensure effective implementation of, and compliance with, the reporting and due diligence procedures in accordance with the CRS (this takes the form of a CRS compliance form).

A list of the Reportable Jurisdictions as at 2024 can be found in the Cayman Islands Gazette No. 27/2024 issued on Friday 12 April 2024, see here.

A useful link to the CRS compliance form can be found here.

Under this provision, an FI is required to make a return ie the CRS return (as referenced in regulation 9(1) of the CRS Regulations) on or before 31 July of the year following the calendar year to which the return relates. For example, if the FI maintains Reportable Accounts in Reportable Jurisdictions for the 2023 CRS reporting year, the FI should be making the CRS return by 31 July 2024 in respect of the 2023 reporting year.

The breach notices have identified that:

1. FIs may have been registered with the DITC under the Foreign Account Tax Compliance Act (FATCA), as applied to the Cayman Islands under the Tax Information Authority Act (Revised), the Tax Information Authority (International Tax Compliance) (United States of America) Regulations (Revised), and associated regulations and guidance but then did not register under the CRS Regulations with the DITC and did not report under regulations 9(1) and (4) of the CRS Regulations. While there may be legal and regulatory reasons for this, FIs would be encouraged to check their legal classification under both the FATCA and CRS regimes to ensure that they have correctly classified themselves based on the unique facts of their business operations. At Harneys we have an online tool that can assist FIs to determine their legal status conclusively, see here. Alternatively, FIs who wish to be provided with bespoke legal advice can also get in contact with us for a more traditional approach.
2. FIs have not made a CRS return to the DITC for each Reportable Account that it maintained.
3. Where the FI did not maintain any Reportable Account, in any Reportable Jurisdiction, it has not made a nil return to the DITC.
4. The FI has not provided the DITC with information reasonably required by the DITC to ensure the effective implementation of, and compliance with, the reporting and due diligence procedures in accordance with the CRS.

In relation to (d) above, FIs would be required to provide this information to the DITC by submitting a CRS compliance form on or before 15 September through the DITC portal, see here.

Typically only the principal point(s) of contact or secondary users for the respective FI can access the portal with their unique user name and password. The user guide on how to navigate in the DITC portal can be found here.

All FIs (which would include Custodial Institutions, Depositary Institutions, Specified Insurance Company and Investment Entity) would be in scope for complying with the CRS Regulations, including but not limited to regulations 9(1) and (4). If an entity is not considered legally to be an FI, then it will either be considered as an Active or Passive Non-Financial Entity (NFE) under the CRS.

Active NFEs are those that:

1. Have less than 50 per cent of the gross income for the preceding calendar year or other reporting period as passive income and less than 50 per cent of the assets held by during the preceding calendar year are assets that produce or are held for the production of passive income;
2. The shares or equity of the NFE are traded on a stock exchange; or
3. Is some type of Governmental Entity, International Organisation, a Central Bank, or an Entity owned by one or more of the above.

Passive NFE is an NFE that is not an Active NFE. Passive NFEs may not be required to comply with the CRS Regulations but may be required by FIs with whom they do business to provide confirmation as to their Passive NFE status, as such, self-certifications will be important.

There are various reasons why an FI may not have complied with the CRS Regulations, these can be for example: where the FI was incorrectly classified, pure administrative oversight, change of service providers where there is some delegation by the FI to a third party, where legal advice has not been taken and the senior management of the FI and/or its functionaries are not wholly familiar with the CRS regime, situations where there is a failure to launch or start the business (but the entity has registered on the DITC portal) or situations where the FI has been struck off (dissolved) and cannot comply until it has been restored to good corporate and regulatory standing.

Where a substantive breach has been identified, the DITC is empowered by section 24 of the CRS Regulations to impose an administrative penalty - CI$50,000 for an offence by a body corporate or for an offence by an individual who forms, or forms part of, an unincorporated FI or otherwise CI$20,000.

Importantly, if the primary penalty has been imposed, which has not been stayed, the contravention has not been remedied and the party is capable of remedying the contravention, the DITC may impose further penalties on the party of CI$100 for each day the contravention continues.

The penalty becomes a debt owing by the party to the Crown thirty days after the penalty is imposed.

Should an FI receive a breach notice, the FI should treat the receipt of such a notice as very serious and liaise with its Cayman Islands legal counsel as quickly as possible in order to mitigate any further breach, to make any mitigation to the DITC by way of formal written submissions and to assist with remedying the breach that has given rise to the issuing of the notice. In certain situations, depending on the facts there may need to be specific submissions relating to the proposed action taken by the DITC or the proposed amount of the penalty bearing in mind reasonableness principles.

Typically, the DITC is expecting FIs to:

1. Make:
   1. A CRS return for each Reportable Account that it maintained during the 2023 calendar year (being the relevant reporting period); or
   2. A nil return to the DITC for the 2023 calendar year; and
2. Prepare and submit via the DITC Portal a CRS compliance form for the 2023 calendar year.

Separately, FIs are reminded that under regulation 7 of the CRS Regulations, FIs are required to establish and maintain written policies and procedures to comply with the CRS Regulations and implement and comply with the policies. Senior management of FIs should be in the habit of ensuring that these policies are reviewed and more importantly are being implemented as a part of the corporate governance framework unique to each type of FI. Where there is some delegation or outsourcing arrangement in place between the FI and a third party service provider, the obligation remains with the FI to ensure that it is CRS compliant.

Where FIs who have registered on the DITC portal, for whatever reason, cease to be an FI, has failed to launch, has not started business operations, does not intend to continue their business operation, they should seek to de-register so as not to continue to be an FI and therefore be subject to the CRS Regulations.

Where CRS notifications and returns are made to the DITC, FIs are under an obligation to ensure that correct information is submitted.

Please do feel free to get in touch with the author or any of your usual Harneys contacts should your FI receive a breach notice and require any assistance.