Updates on Automatic Exchange of Information (AEOI) Cayman Islands Compliance Association (CICA) Peter Stafford Head, AEOI (Acting), Department for International Tax Cooperation Wednesday, 21 March, 2018 | Grand Cayman Disclaimer: This presentation is intended to give a general overview of the topics addressed and cannot be relied upon for any legal purposes
Agenda 1. Country-by-Country Reporting (CbCR) 2. Common Reporting Standard (CRS) 3. CRS Mandatory Disclosure Rules (MDR) 2
Country-by-Country Reporting (CbCR) 3
CbCR - BEPS • OECD/G20 Base Erosion and Profit Shifting Project (BEPS) – Refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations – BEPS distortions: MNE affiliates in low tax countries report almost twice the profit rate (relative to assets) of their global group • BEPS Package includes 15 Actions • Under the BEPS Inclusive Framework over 110 countries and jurisdictions, including Cayman, are collaborating to implement the BEPS measures • Cayman’s “ CbCR Regulations” implement BEPS Action 13 4
CbCR – Transfer Pricing • BEPS Action 13 Transfer Pricing and Country-by-Country Reporting – Transfer pricing refers to prices charged between related parties (e.g. a parent company and its controlled foreign corporation) in an intercompany transaction • Intercompany transactions are eliminated on the parent’s consolidated financial statements • Intercompany transactions are not eliminated tax purposes • Transfer pricing between related entities in different countries with different CIT rates can affect the MNE Group’s profits – CbCR is designed to enhance transparency for tax administrations by providing them with adequate information to assess high-level transfer pricing and other BEPS-related risks 5
CbCR – MNE Group • CbCR only applies to MNE Groups • Important definitions: – “Group” • collection of enterprises related through ownership or control such that it is either – required to prepare Consolidated Financial Statements for financial reporting purposes under applicable accounting principles or – would be so required if equity interests in any of the enterprises were traded on a public securities exchange – “Excluded MNE Group” • any Group where previous year’s annual revenue < US$850MM ( € 750MM) – “MNE Group” • Any Group that is not an Excluded MNE Group i.e. largest 10-15% of all Groups which own 85-90% of all assets 6
CbCR – Entities • Constituent Entity: – Any entity that is part of an MNE Group – CbCR Regulations only apply to Constituent Entities that are “resident in the Islands ” • incorporated or established • place of effective management • subject to financial supervision (CIMA) DITC expects a few thousand in Cayman, i.e. only a very small percentage of all Cayman companies, partnerships and trusts • Reporting Entity – Two types • Ultimate Parent Entity • Surrogate Parent Entity 7
CbCR - Notification • CbCR Guidance – http://www.tia.gov.ky/pdf/CbCR_Legislation.pdf • CbCR Portal – expected later this week • Notification via the CbCR Portal – Required for every Constituent Entity resident in the Islands – Reporting Entity • Appoints a Primary Contact and a Secondary Contact • One notification for all Constituent Entities resident in the Islands – templates: Authorisation Letter; CSV formatted CE File • DITC issues a “ CbCR ID” to the Reporting Entity – Deadline for notification: • 15 May 2018 if Reporting Entity is also resident in the Islands • 30 Sept 2018 if Reporting Entity is not resident in the Islands 8
CbCR - Reporting • Reporting via the CbCR Portal – Every Reporting Entity resident in the Islands must electronically file a CbC Report – Reporting deadline this year is 31 May 2018 – TIA must transmit CbC Messages by 30 June 2018 to other jurisdictions participating in CbCR • CbC Report – XML schema prescribed by the OECD • OECD (2017), Country-by-Country Reporting XML Schema: User Guide for Tax Administrations • Includes reportable information on Reporting Entity and each Constituent Entity (wherever resident): – Residence – Revenues from related parties and from unrelated parties; profits; taxes paid and accrued; employees; non-cash assets • Includes a summary of MNE Group’s activities 9
Common Reporting Standard (CRS) 10
CRS - Preparation • Cayman Financial Institutions – comply with obligations under CRS Regulations • Core documents: – Cayman: • Tax Information Authority Law (2017 Revision) and Schedules • CRS Regulations 2015 and 2016 Amendment (revised in Q2.2018) • CRS Guidance Notes v3.0 (revised 15 March 2018) • CRS Lists of Participating Jurisdictions and Reportable Jurisdictions (revised 5 January 2018) • AEOI Portal User Guide (FATCA & CRS) v4.0 (revised 15 March 2018) • Self-Certifications (Individual & Entity) ( revised 15 March 2018 ) • DITC’s AEOI News and Updates – OECD: • CRS and Commentary (Second Edition) (2017 replaced 2014) • CRS Implementation Handbook (Second Edition is imminent) • Automatic Exchange Portal • CRS-related Frequent Asked Questions 11
CRS Timeline (historical) 31 December 2015 Pre-existing Accounts in scope for due diligence procedures 1 January 2016 New Accounts requiring self-certification by the customer onward Complete review of Pre-existing High-Value Individual Accounts 31 December 2016 End of first CRS reporting period 30 June 2017 Cayman Financial Institutions complete initial registration on AEOI Portal (30 April in future) (available from 17 May 2017) 13 September 2017 Cayman Reporting Financial Institutions and Trustee Documented Trusts (31 May in future) complete initial reporting on AEOI Portal TIA completes first transmission of CRS reports to OECD Common Transmission System (CTS) for onward transmission to relevant 30 September 2017 Reportable Jurisdictions; recipient Competent Authorities’ inquiries to TIA will follow Complete review of Pre-existing lower value Individual Accounts 31 December 2017 Complete review of Pre-Existing Entity Accounts 12
CRS Timeline (ongoing) 5 January 2018 CRS lists of Participating & Reportable Jurisdictions updated 15 March 2018 CRS Guidance Notes v3.0 replaces v2.0 15 March 2018 AEOI Portal User Guide v4.0 replaces v3.2.1 15 March 2018 AEOI Portal reopens with new CRS and FATCA features 30 April 2018 CRS / FATCA – deadline for CFIs to notify (register) 31 May 2018 CRS / FATCA – deadline for CFIs to submit Returns 30 September 2018 CRS / FATCA deadlines for transmission to CTS / IDES 31 December 2018 CRS due diligence remediation of Controlling Persons 2018 CRS Regulations 2018 Revision expected 2020 Global Forum AEOI Peer Reviews of CRS Implementation 13
Participating Jurisdictions Appendix 2 to the CRS Guidance Notes v3.0 (Extraordinary Gazette 2-2018) Andorra France Nauru Anguilla Germany Netherlands Antigua and Barbuda Ghana New Zealand Argentina Gibraltar Niue Aruba Greece Norway Australia Greenland Pakistan Austria Grenada Panama Now 102 Azerbaijan Guernsey Poland Bahamas, The Hong Kong (China) Portugal Participating Bahrain Hungary Qatar Barbados Iceland Romania Jurisdictions with Belgium India Russian Federation Belize Indonesia Saint Kitts and Nevis more to follow in Bermuda Ireland Saint Lucia Brazil Isle of Man Saint Vincent and the Grenadines 2019 and 2020 British Virgin Islands Israel Samoa Brunei Darussalam Italy San Marino Bulgaria Japan Saudi Arabia Canada Jersey Seychelles Cayman Islands Korea Singapore Chile Kuwait Sint Maarten China Latvia Slovak Republic Colombia Lebanon Slovenia Cook Islands Liechtenstein South Africa Costa Rica Lithuania Spain Croatia Luxembourg Sweden Curaçao Macau (China) Switzerland Cyprus Malaysia Trinidad and Tobago Czech Republic Malta Turkey Denmark Marshall Islands Turks and Caicos Islands Dominica Mauritius United Arab Emirates Estonia Mexico United Kingdom Faroe Islands Monaco Uruguay 14 Finland Montserrat Vanuatu
Reportable Jurisdictions Appendix 3 to the CRS Guidance Notes v3.0 (Extraordinary Gazette 2-2018) In 2017 there were 45 Reportable Jurisdictions 15
Reportable Jurisdictions Appendix 3 to the CRS Guidance Notes v3.0 (Extraordinary Gazette 2-2018) In 2018 there 45 more Reportable Jurisdictions added; the total is now 90 16
CRS – Guidance Notes • CRS Guidance Notes v 3.0 replace 2.1 (Industry Advisory lists the key changes) – Entity Self-Certification – new form for corrected definition of Controlling Persons of Account Holder that is a legal person classified as a Passive NFE under CRS (page 17) – Lists of Participating Jurisdictions and Reportable Jurisdictions – FI in liquidation must arrange for service provider to perform obligations arising prior to dissolution which require performance / completion after dissolution (e.g. maintain books and records post dissolution) – FI migrating from the Cayman Islands to another Participating Jurisdiction – Indirect distribution by trust 17
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