This approach may succeed in working within the parameters of each
participating country’s own privacy laws, account closure and reporting requirements, while allowing each participating country to benefit from the shared tax information.
Members of the Cayman Islands’ offshore investment industry have
begun to speculate how Cayman may be affected by this approach as, perhaps, a future participating country. However, according to the joint statement, the intergovernmental approach is still at the exploratory stage, and little has been explained beyond the joint statement.
The reciprocity offered by the intergovernmental approach is not likely
to yield any immediate direct benefits locally, but if it were available the Cayman Islands may be inclined to evaluate it and, perhaps, fully participate. The current Confidential Relationships (Preservation) Law (2009 Revision) is a likely significant hurdle that Cayman Islands FFIs must navigate in any FATCA compliance strategy, though the intergovernmental approach may be part of the solution. The costs of this approach are another unknown factor.
in FATCA compliance. FFIs may require technical assistance from other service providers to achieve deemed-compliant status. Many in the industry are hopeful that Cayman Islands regulated investment funds will qualify under a registered deemed-compliant category.
Once an FFI has determined its FATCA strategy, the FFI must begin
to put the strategy into action. Many fund administrators seem to believe that the administrators will assist in FATCA compliance, though this may differ from fund to fund. While fund administrators for a participating FFI may not be the responsible officers to certify compliance, they may be requested to provide the administrative functions required for compliance. Fund administrators for deemed- compliant FFIs may be requested to perform continued administrative burdens to ensure a deemed-compliant FFI’s continued compliance.
Under the current proposed rules, participating FFIs can enter into an
FFI agreement online with the IRS from January 1, 2013. For participating FFIs the responsible officer must certify to the IRS by July 1, 2013, that the new account-opening procedures are in place to identify US account holders. In general, a deemed-compliant FFI should probably be registered with the IRS before withholding is scheduled to begin on January 1, 2014.
“An FFI which has an agreement with the IRS is considered to be a ‘participating’ FFI and will not be subject to the withholding tax.”
The Cayman Islands is focused on transparency and integrity and
currently has 27 signed tax information exchange agreements (TIEAs) in place with countries including the UK, Ireland, Japan, France, Germany and the US. The TIEAs operate as an exchange of information upon request. The intergovernmental FATCA approach would appear to expand the sharing of information on an automatic bilateral basis, which could have an impact on the current Tax Information Reporting Law (2009 Revision) in the Cayman Islands, should Cayman participate in this approach.
Currently there is no indication that the reporting requirements
of the intergovernmental approach will be materially different from those required under the proposed regulations. In fact FFIs reporting under this approach may find compliance even more challenging and, perhaps, more costly. Nonetheless, the intergovernmental approach could present an opportunity for the Cayman Islands to distinguish itself further as a leading offshore financial centre.
Alongside the European Union Savings Directive, FATCA could very
well become the catalyst in what could evolve into a multilateral approach to information exchange, although the programme outlined in the joint statement remains hypothetical.
Compliance The proposed regulations have introduced a complex set of rules to
FFIs for FATCA compliance, including that the FFI itself is required to comply, whether it is as a participating FFI or a registered deemed- compliant FFI. Otherwise, it risks becoming a non-participating FFI and subject to withholding tax.
Each FFI must quickly determine whether it can meet the requirements for a deemed-compliant FFI, and if not, whether the FFI will participate
34 CAYMAN FUNDS | 2012
Summary A significant number of offshore investment funds may not qualify
for deemed-compliant status and will, therefore, need to become a participating FFI or be subject to the withholding. Assistance may be required by each FFI in its deemed-compliant determination, as well as registration and compliance with the administrative burdens thereafter. Similarly, an FFI that becomes a participating FFI may also require assistance with the process.
The intergovernmental approach is an intriguing option and should
be monitored as the approach evolves from its current joint statement status. What is certain is that each FFI must devise a strategy for FATCA compliance.
Ian Bridges is a tax director at PwC Cayman Islands. He can be contacted at:
ian.l.bridges@
ky.pwc.com
Paul Eldridge is the managing director of the PwC Bermuda tax practice. He can be contacted at:
paul.eldridge@bm.pwc.com
Ian Bridges specialises in tax engagements for financial services clients. He has 15 years of combined experience with both ‘Big Four’ public accounting firms and the private sector, including 10 years of extensive financial services industry experience. He is a Certified Public Accountant licensed in
the US state of Illinois and a member of the Canadian Institute of Chartered Accountants.
Paul Eldridge is a member of the PwC US and Global FATCA networks, and the lead FATCA partner for the PwC Caribbean region. He has 30 years of experience in senior positions in both accounting and tax as a partner at PwC US and as the chief tax officer of a Fortune 500 company.
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