Cayman Islands FATCA tax alert

On 4 July 2014, the Cayman Islands Government advised that the “Tax Information Authority

(International Tax Compliance) (United States of America) Regulations, 2014” (US

Regulations) and “Tax Information Authority (International Tax Compliance) (United Kingdom)

Regulations, 2014” (UK Regulations) had been put into effect.

US Regulations – http://www.gazettes.gov.ky/sites/default/files/extraordinary-gazettes-

supplements/Es432014_web.pdf

UK Regulations – http://www.gazettes.gov.ky/sites/default/files/extraordinary-gazettes-

supplements/Es442014_web.pdf

Subsequently, on 22 July 2014, the Cayman Islands Government distributed final guidance

notes on the implementation of the Foreign Account Tax Compliance Act (FATCA) in the

Cayman Islands in accordance with the terms of an Intergovernmental Agreement (IGA) that

the Cayman Islands entered into with the United Kingdom on 5 November 2013 (UK Agreement)

and the United States on 29 November 2013 (US Agreement). The guidance notes were

subsequently updated, and a version 2.0 was issued on 15 December 2014. These are available

for review on the Cayman Islands Tax Information Authority website.

http://tia.gov.ky/pdf/FATCA_Guidance_Notes.pdf

Provided Cayman Islands Financial Institutions (including subsidiaries and branches of non-

resident Financial Institutions that are located in the Cayman Islands) comply with these

regulations, when effective, they will not be subject to FATCA withholding tax under the US

Internal Revenue Code.

A summary of the main points of interest in the Cayman Islands regulations and guidance

notes and EY observations are detailed below. This includes many provisions set out in the IGA

that are incorporated into the regulations. This summary is not meant to be a substitute for

the actual guidance notes or the regulations.

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January 2015

Tax alert

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A. Cayman Islands “Tax Information Authority (International Tax Compliance) (United States of America) Regulations, 2014“ Key issues: FI’s ability to use alternative definitions under Treasury Regulations or OECD CRS Sections 2.(2)(a) and 2.(2)(b) of the US regulations

state that a word or expression defined in the US

Agreement has the meaning in that Agreement

except to the extent that a Financial Institution (FI)

may use an alternative definition provided in either

the US Treasury Regulations or the Common

Reporting Standard (CRS) for the Automatic

Exchange of Financial Account Information published

by the Organisation for Economic Co-operation and

Development (OECD).

EY observation

Cayman FIs may use an alternate definition under the US

Regulations or OECD CRS, as long as the use of such

definition would not “frustrate the purposes of the

Agreement.” Determination of such allowable use will

take into account any guidance issued or approved by

the Cayman Islands Tax Information Authority (TIA).

Pre-Existing Entity Account identification date Section 5.(5)(f) states that a New Entity Account is a

financial account opened after 30 June 2014, except

insofar as a Reporting FI has elected to substitute a

date no later than 31 December 2014 for the 30 June

2014 date.

Pre-Existing account holder opens a new account

Section 7(2) provides that if an institution obtains, or is

in the process of obtaining, evidence of a person’s US

status in relation to any Pre-Existing Account, it may rely

on the evidence in relation to any new account unless it

has reasonable cause to believe that the person’s US

status has subsequently changed.

Registration An application for registration shall be made by a

Reporting Financial Institution or Registered Deemed-

Compliant Financial Institution as soon as possible but

prior to 31 December 2014 or, if the institution has not

commenced to carry on a business on that date, not later

than 30 days following the date of commencement of

that business.

Information returns Submission of informational returns of US reportable

accounts and payments to non-participating FIs for the

2014 US tax year will be due to the TIA by 31 May 2015. Due

date for UK reporting is 31 May 2016.

US reportable accounts For all US reportable accounts maintained by the

institution in that year, the returns must include:

For 2014 tax year and every following calendar year:

Name, registered address and Global Intermediary

Identification Number (GIIN) of the financial institution

filing the return

A statement of whether paragraph five of Article 4 of

the Agreement (Special Rules Regarding Related

Entities and Branches that are Non-participating

Financial Institutions) applies and, if it does, whether

the requirements have been met

Name, address and US tax identification number or

date of birth, as appropriate, of each account holder

that is a US person or of a passive entity and its

controlling US person(s), where this arises; also

required for each:

Account number (or its functional equivalent)

Account balance or value at end of the tax year

or, if an account was closed during the year, the

highest balance or value of the account on the

date the Reporting FI closed the account

Additional details to be required, beginning the tax

year 2015:

For custodial accounts, the total gross amount of

interest, dividends and other income arising from

assets held in the account

For depository accounts, the total gross amount of

interest paid/credited

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For all other accounts, the total gross amount paid or

credited to the account holder where the institution is

the obligor or debtor, including the aggregate amount

of redemption payments

Additional details to be required, beginning with the 2017

tax year:

For custodial accounts, the gross proceeds from

sales/redemptions associated with the account

where the institution acted as custodian, broker,

nominee or agent

Payments to Non-Participating Financial Institutions (NPFIs)

A Reporting Financial Institution shall establish and

maintain arrangements designed to identify payments

made to an NPFI in either the calendar year 2015 or 2016.

A Reporting Financial Institution shall in respect of each of

the calendar years 2015 and 2016 prepare a return

detailing the names of the NPFIs to whom payments have

been identified in accordance with regulation 10(1) as

having been made in the year in question and the

total amount of payments made to each of the NPFIs

in question.

If, for a calendar year, no payments are identified,

the Reporting Financial Institution shall prepare a

return for the calendar year stating that fact.

Due dates for Cayman Islands Financial Institutions

Notification to the Competent Authority

An FI which has reporting obligations under the regulations

shall notify the Competent Authority of that fact and shall

provide by 31 March in the first calendar year in which it is

required to comply, the following:

The name of the FI

Categorization of the FI as determined in accordance

with the Agreement

Where the FI has registered with the Internal Revenue

Service (IRS) of the US for purposes of the US

Agreement with regulation 4, the GIIN assigned to

that FI by the IRS

In conjunction with the release of the updated Cayman

Islands FATCA Guidance Notes, the Cayman Islands

Government also indicated that “the Ministry currently is

making proposals for Cabinet approval to amend the

notification due date prescribed in Regulations 10(3)

and 14(3) of the UK and US Regulations, respectively,

from 31 March to 30 April. An industry advisory will be

issued following Cabinet’s consideration.”

Filing date of informational return to the Cayman Islands TIA

An FI shall send a return to the Competent Authority on or

before 31 May of the year following the calendar year to

which the return relates, in the form the Competent

Authority requires.

The required form for electronic reporting will be made

available on the Cayman Islands TIA website in early 2015.

The reporting format will be consistent with currently

published schemas by the US IRS for FATCA and the OECD

for CRS.

Nil returns

Under US Regulations if, during the calendar year in

question, the Reporting Financial Institution

maintains no reportable accounts it must submit a

return stating that fact (i.e., nil return).

Enforcement and penalties The Regulations (both US and UK) detail anti-avoidance

measures directed at arrangements put in place by any

person to avoid the obligations required by the

Regulations. These anti-avoidance provisions mirror

existing penalty provisions found under Exchange of

Information Laws in the Cayman Islands, for example, the

Reporting of Savings Income Information (European

Union) Law enacted in 2005.

Specific details on the penalties related to non-compliance

can be found in the Cayman Islands TIA Regulations

enacted for both the US and UK Agreements.

Third-party appointment

Third parties may be appointed as agents to carry out the

duties and obligations imposed by these regulations.

However, the FI must have access to all records and

documentary evidence used to identify and report on

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reportable accounts and remains responsible for carrying

out its obligations. The FI is responsible for any failure of a

third party to carry out its obligations, notwithstanding

that the actions were the actions of the third party or that

the failure to act was the failure by that third party to act.

Arrangements to obtain the US TIN of every specified US

person on a reportable account are required for all new

accounts opened from 1 July 2014 (except for New Entity

Accounts insofar as a Reporting FI has elected to

substitute a date no later than 31 December 2014 for the

30 June 2014 date) and all Pre-Existing Accounts from

1 July 2017.

EY observation

It would seem most efficient for FIs to request the US TIN,

where relevant, from holders of new accounts in the same

document/process via receipt of a completed Form W9 or

as the core self-certification question itself (see further

comments below).

B. Cayman Islands “Tax Information Authority (International Tax Compliance) (United Kingdom) Regulations, 2014“ Much of the UK Regulations in general are similar to

the US Regulations previously discussed in item A,

though obviously some terms and references will

differ between these jurisdictions. Key differences

between the US and UK Regulations will be discussed

in more detail under item C (Cayman Islands IGA

guidance notes section) of this alert.

It is advised that the UK Regulations be reviewed in

order to understand those requirements, though we

will highlight some of the key issues here.

Account holder identification

Under UK Regulations, the account holder’s UK tax

status and residency status is important for the due

diligence and identification process, not citizenship or

place of incorporation as with the US Regulations.

Information returns initial due date

Submission of informational returns of UK reportable

accounts for the 2014 and 2015 tax years will be due to the

TIA as of 31 May 2016.

Registration

Currently, there is no required registration for FIs

with Her Majesty’s Revenue and Customs (HMRC)

under the UK Regulations and, thus, no UK equivalent

to the US GIIN.

Pre-Existing Accounts

For individual or entity accounts, any reference to a

Pre-Existing Account is to a financial account

maintained on 30 June 2014. Any account opened

after that date is considered a new account for

UK Regulations.

Nil returns

Under the UK Regulations if, during the calendar

year in question, the Reporting Financial Institution

maintains no reportable accounts it must submit a

return stating that fact (i.e., nil return).

C. Cayman Islands IGA guidance notes (22 July 2014)

The Cayman Islands guidance notes cover both the US and

UK regulations throughout the document, as well as OECD

CRS definitions where applicable. This comprehensive

approach should be beneficial for all institutions in

understanding their compliance requirements for the

various information reporting regimes.

It should be noted that to best serve the Cayman Islands

institutions, the Cayman Islands guidance notes will

be updated periodically to address any issues or

terms that need additional clarity or definition.

Comments from industry may be communicated to

the Cayman Islands Government through the

appropriate channels.

Chapter 1: Background

The Cayman Islands entered into IGAs with the US and UK

in 2013 which, throughout this alert, will be referred to as

the “US Agreement” and “UK Agreement” as applicable.

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The Cayman Islands Competent Authority The Cayman Islands Competent Authority is the TIA. The

functions of the TIA are carried out by the Director and

staff of the Department for International Tax

Cooperation (DITC).

The TIA will receive the information required to be

disclosed under the Agreements and transmit that

information to the IRS in respect of the US Agreement and

HMRC in respect to the UK Agreement.

The TIA does not have responsibility for the audit of the

information provided by the FIs. The TIA will monitor

compliance by the FIs with domestic legal requirements

and, as necessary, will enforce applicable Cayman Islands

Laws and Regulations, including cases of significant

non-compliance reported by the US or UK

Competent Authorities.

Specified Persons Reference to Specified Person (defined in the US and UK

Agreements) in these guidance notes relates to either a

Specified US Person or Specified UK Person, as the

context requires. Where a different treatment applies,

these guidance notes will state Specified US Person or

Specified UK Person.

Chapter 2: Financial Institutions affected by FATCA What constitutes a financial institution? Custodial institutions will include brokers, custodial

banks, trust companies and clearing organizations.

Depository institutions will include banks, credit

unions, industrial and provident societies and building

societies, etc.

Investment entities, as defined in the Agreements,

include any Entity that conducts as a business, or is

managed by an Entity that conducts as a business,

one or more of the following activities for or on behalf

of customers:

1) Trading in money market instruments

2) Foreign exchange

3) Interest rate and index instruments

4) Transferable securities and commodity

futures trading

5) Individual and collective portfolio management

6) Otherwise investing, administering or managing

funds or money on behalf of other persons – this

category includes collective investment funds,

fund administrators, fund managers, fund

distributors and custodians. The updated

guidance notes (version 2) have provided

additional clarity on the “managed by” test

and between “managing” and “administering”

by entities

(Note that reporting obligations only exist if

financial accounts are held with the institution

and so duplicative reporting on the same

financial accounts is not intended to arise. It

should also be noted that the CRS definition of

Investment Entity differs from the Agreements

definition. However, the CRS definition is

substantially similar to the US Regulations

definition. Entities have a choice of which

definition to apply.)

7) Specified Insurance Companies, including

insurance companies and their holding companies

when the insurance company writes products

which are cash value or annuity contracts

8) A Captive Insurance Company that does not issue

cash value insurance contracts or annuity

contracts would, in most instances, not be

categorized as an FI and would thus be deemed a

Non-Financial Foreign Entity (NFFE). The

updated guidance notes (Version 2) in section

2.11.1 have clarified the requirements where a

Cayman captive insurance company, having

made a US IRC section 953(d) election, would

be treated as a US entity and not a Cayman

entity for FATCA purposes.

9) The updated guidance notes have added a

“Nominee Companies” section (2.12),

defining the requirements to be

considered disregarded.

10) Subsidiaries and branches of a non-Cayman

Islands entity (including a US Entity) carrying on

a business as a Custodial Institution, Depository

Institution, an Investment Entity, or Specified

Insurance Company in the Cayman Islands

will be a Reporting Cayman Islands

Financial Institution.

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What constitutes a Cayman Islands Financial Institution?

A Cayman Islands Financial Institution is any financial

institution organized under the laws of, or resident in the

Cayman Islands.

For a company, if the company is incorporated in the

Cayman Islands

For trusts, if any of the trustees are incorporated,

registered or licensed in the Cayman Islands

(section 6)

For partnerships, if the partnership is established in

the Cayman Islands

Related Entities and Expanded Affiliated Groups Under the US Agreement, an Entity is a related Entity of

another Entity if either Entity controls the other Entity, or

the two Entities are under common control. Control for

this purpose includes direct or indirect ownership of more

than 50% of the “vote or value” in an Entity.

The definition of “control” and “expanded affiliated group”

under the US Regulations may be used by an FI instead.

Under the US Regulations, the definition of control

includes “direct or indirect ownership of more than 50% of

the vote and value” in an Entity.

EY observation

To avoid potentially onerous identification, reporting and

registration burdens resulting from being part of an

Expanded Affiliated Group, an Entity may wish to use the

US Regulations definition of “control” as the potential of

meeting both vote and value tests is less likely.

Chapters 3 and 4: Non-Reporting Financial Institutions (US Agreement) and Non-Reporting Financial Institutions (UK Agreement)

US Agreement – Exempted Financial Institutions

Certified Deemed Compliant Financial Institutions (Annex II of the IGA)

Expanded definitions and categories of Certified Deemed

Compliant Financial Institutions (CDCFIs) are provided

and include: (1) FIs with a local client base (required to be

assessed annually via implemented policies and

procedures), (2) certain collective investment vehicles,

(3) local banks, (4) FIs with only low value accounts,

(5) qualified credit card issuers, (6) sponsored closely

held investment vehicles, (7) trustee-documented trusts,

(8) sponsored investment entities and controlled foreign

corporations, (9) limited life debt investment entities,

(10) investment advisors, and (11) investment managers.

The updated guidance notes have given more clarity

around the investment advisor (IA) and investment

manager (IM) definition, also giving an example of a

general partner to a limited partnership. Each IM or IA

should still determine its FATCA classification based on its

specific duties and services provided per the regulations.

The updated guidance notes have also added an

additional type of CDCFI – “Excepted inter-affiliate FFI” –

which is detailed in the new section 3.3.11.

A Cayman Islands FI that qualifies as one of the CDC

categories above will not need to register to obtain a

GIIN, save in limited circumstances detailed in section

3.3. It will need to certify its status by providing

documentation regarding its owners to withholding

agents where relevant.

Registered Deemed Compliant Financial Institutions

Cayman Islands FIs may also benefit from categories of

Registered Deemed Compliant Financial Institutions under

the US Regulations which include: (1) a non-reporting

member of a group of related participating FIs, (2) a

restricted fund, and (3) a qualified collective

investment vehicle.

A Cayman Islands FI that qualifies as one of the Registered

Deemed Compliant categories above would need to

register with the IRS to obtain a GIIN, or be registered by

another Entity. Such an FI will not need to report, but

details of Financial Accounts maintained by the FI may be

reported by another entity.

EY observation

In order to benefit from certain exemptions, the guidance

notes state that FIs must implement policies and

procedures to monitor that these conditions are

continuously being met.

UK Agreement – Exempted Financial Institutions

Expanded definitions and categories of small or limited

scope FIs qualifying as Non-Reporting Cayman Islands

Financial Institutions include: (1) local credit unions,

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(2) FIs with only low value accounts, and (3) qualified

credit card issuers.

Investment entities that qualify as Non-Reporting

Cayman Islands Financial Institutions include: (1) Trustee-

Documented Trusts, (2) Sponsored investment entities

(3) Sponsored closely held investment vehicles,

(4) Investment advisors and investment managers,

and (5) Collective investment vehicles.

This section also details special rules for reporting

interests of investment entities in collective investment

vehicles which, if the qualifications are met, may allow for

the reporting obligations of the Investment Entity with

respect to those interests to be met.

EY observation

The UK Agreement differs in many aspects from the US

Agreement; thus, those institutions with reporting

requirements to both the US and the UK should review

the guidance notes in order to comply appropriately

with each.

Chapter 5: Exempt beneficial owners What types of entities and products qualify for this status? Entities regarded as Exempt Beneficial Owners are Non-

Reporting Financial Institutions.

Entities and products that qualify as Exempt Beneficial

Owners include (1) government entities that, for the

Cayman Islands, include the Cayman Islands Monetary

Authority, (2) retirement/pension funds that, for the

Cayman Islands, includes (a) Broad and Narrow

Participation Retirement funds meeting the criteria in

Annex II of the Agreements (under which “subject to

government regulation” means they are registered with

the Cayman Islands National Pensions Office) and

(b) Pension Funds managed and administered by the

Public Service Pensions Board.

Exempt beneficial owners do not need to register with

the IRS for a GIIN.

Due to an addition made to Annex II in the UK

Agreement for “Limited Capacity Exempt Beneficial

Owners,” the updated guidance notes added a new

section 5.4, detailing that the Controlling Persons of a

charity shall be treated as Exempt Beneficial Owners

solely in their capacity as a Controlling Person of that

charity, therefore removing the requirement to “look

through” the charity to the Controlling Persons. Thus, the

UK and US Agreements are now similar in this treatment.

Chapter 6: Trusts How are Cayman Islands Resident Trusts viewed for the US and UK Agreements, and what are the general reporting and registration requirements? This section applies to all Cayman Islands Resident Trusts.

A trust is resident in the Cayman Islands, for purposes of

the Agreement, if it has a trustee that is a trust corporation

which is incorporated, registered or licensed in the Cayman

Islands. A Cayman Islands Resident Trust thus may be

established under Cayman Islands law or the law of

another jurisdiction. The updated guidance notes add the

following language to the definition above prior to the last

sentence – “or, in the case of an individual trustee, the

person is resident in the Cayman Islands.”

Multi-jurisdictional trustees may be involved, thus for a

Cayman Islands Resident Trust the Reporting Cayman

Islands Financial Institution/Cayman Islands resident

trustee must undertake the reporting obligations where

required, unless it has actual knowledge that another FI

has reported the required information (regardless of

whether that FI is a Cayman Islands Financial Institution or

not). “Actual knowledge” is defined as holding written

confirmation from the trustee in the other jurisdiction that

the trust has been reported for the US or UK Agreement.

Reporting obligations under the Agreements only apply to

Cayman Islands Resident Trusts where any of the

following persons fall within the definition of Controlling

Persons under section 9.7, and are identified as Specified

Persons as defined under section 1.7:

Settlor

Beneficiary or class of beneficiary

Trustee

Protector

Any other natural person exercising ultimate

effective control over the trust

Alternatively, persons described under the definition of

“equity interest” in the US Regulations may be used.

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If any of the above is identified as a Specified Person,

then information related to the trust may need to be

reported. How this information is reported, and by whom,

depends on whether the trust is an FI or Non-Financial

Foreign Entity.

If none of the above is identified as a Specified Person,

then no further reporting is required with respect to the

trust.

Trusts are categorized for purposes of the Agreements as

Investment Entities, FIs or Non-Financial Foreign Entities

(NFFEs). The guidance notes in section 6.4 give a very

good overview of the categories and provide examples of

trust scenarios. The updated guidance notes add a

paragraph to section 6.4, which says that a trust could

meet any of the FI definitions, depending on the nature of

its activities and the assets held. A trust is expected to be

treated as an FI most commonly where it meets the

definition of an Investment Entity. Section 6.4 sets out

how a trust would be treated if it was an Investment Entity

or an NFFE and not in regard to trusts that might be any

other type of FI.

Reporting and registration for trusts has various options.

A trust that is an Investment Entity may be able to use

one of four categories of FIs to simplify the process. These

are as follows:

1) Trustee-Documented Trust

2) Sponsored Investment Entity

3) Owner-Documented Financial Institution (section 3.4)

4) Sponsored, closely held investment vehicle

(section 4.3.3)

For each of these, the trust will be a Non-Reporting

Financial Institution.

If none of these apply, and the trust is not an NFFE, the

trust will be a Reporting Financial Institution and will need

to register/report as applicable.

Trustee-Documented Trusts (TDT)

A trust may be treated as a TDT, if both of the following

conditions are met:

1) A trustee of the trust is any of the following: (1) a

Reporting US Financial Institution, (2) a Reporting UK

Financial Institution, (3) a Reporting Cayman Islands

Financial Institution, (4) a Reporting Model 1

Financial Institution, or (5) a Participating Foreign

Financial Institution.

2) The trustee agrees to report all the information

required to be reported with respect to the trust.

In this situation, the trust will not be required to

register under the US Agreement, since the trustee will

register by virtue of being an FI.

EY observation

It is expected that for most Cayman Islands Resident

Trusts, there will be a trustee who will meet the

requirements of condition 1 above and take on the

reporting obligations as needed to qualify the trust

under the Trustee Documented Trust scenario.

Sponsored Investment Entity US Agreement A trust that is an Investment Entity may appoint a

Sponsor to take on its due diligence, registration and

reporting obligations, although this is not permitted for

trusts that are withholding foreign trusts under the

US regulations.

If a Sponsoring Entity is appointed, there is no

requirement for the trust to be registered, unless it has

a US Reportable Account. If such an account is

identified, the Sponsoring Entity must register the trust

on or before the later of 31 December 2015 or 90 days

after the reportable account is identified.

UK Agreement A Cayman Islands Resident Trust that is an

Investment Entity may only appoint a Cayman Islands

Sponsoring Entity to take on its due diligence and

reporting obligations.

The Cayman Islands Sponsoring Entity must identify

the trust in the reporting completed on behalf of the

trust and notify the TIA of its status as the Sponsor.

EY observation

It should be noted that the US Agreement allows for

any institution, regardless of jurisdiction, to be

appointed as a Sponsoring Entity for an entity in any

other jurisdiction. However, the UK Agreement

limits the jurisdiction of the Sponsoring Entity to

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being in the same jurisdiction as the Sponsored

Entity (i.e., a Cayman Islands entity can only be a

Sponsoring Entity for another Cayman

Islands entity).

The updated guidance notes added a new section

covering Private Trust Companies (section 6.14)

to give clarity to these institutions for

FATCA compliance.

In addition, the updated guidance notes in section

6.15 bring the US and UK Agreements in line for

purposes of viewing charitable trusts as Active

NFFEs, though the UK requirements for this status,

as detailed, must be met.

Chapter 7: Collective investment vehicles

Generally, a Collective Investment Vehicle (CIV)

includes any Entity that is defined under the Cayman

Islands Mutual Funds Law (2013), as amended and

revised. Any Entity treated as a CIV will be an

Investment Entity and, thus, an FI.

As applicable to fund entities, Investment Entities

may include: (1) CIVs, detailed above, (2) fund

managers, (3) investment managers, (4) fund

administrators, (5) transfer agents, and

(6) depositories and trustees of unit trusts.

However, the only Financial Accounts relevant to the

Agreements are equity/debt interests issued in CIVs.

A financial institution must identify and report

accounts only if the Entity maintains financial

accounts. Thus, an Entity that is an Investment

Entity because, for example, it administers CIVs but

does not itself maintain financial accounts, will not

have to identify and report. In addition, where fund

interests are held through intermediaries, it will be

the intermediary’s responsibility to identify and

report on its direct account holders.

Distributors in the chain of legal ownership will be

considered FIs maintaining financial accounts. This

includes certain fund nominees, intermediaries and

platforms. It is noted that such distributors will be

required to aggregate accounts to determine

whether exemption thresholds may apply, even if an

account holder has accounts across various CIVs.

Distributors that act in an advisory-only capacity and

are not in the chain of legal ownership of a CIV will

not be regarded as an FI in respect of any accounts

on which they advise.

Reporting can be done through a Sponsored

Investment Entity Financial Institution. In addition,

a CIV may delegate obligations to a third-party

service provider, though ultimately the responsibility

will remain with the CIV as the Reporting

Financial Institution.

Section 7.6 details Deemed Compliant Collective

Investment Vehicles. Of specific note is the Qualified

Collective Investment Vehicle (QCIV) status for which

an Investment Entity could qualify to be treated as a

Registered Deemed Compliant Financial Institution.

A Cayman Islands FI that qualifies for Registered Deemed

Compliant FI status would need to register with the IRS to

obtain a GIIN, or be registered by another Entity. Such an

FI will not need to report, but details of Financial Accounts

maintained by the FI may be reported by another entity.

To qualify as a QCIV, the Investment Entity must

meet all of the following requirements:

The QCIV must be an Investment Entity and must

be regulated as an Investment Entity in the

Cayman Islands and every country it operates

in. If the manager is regulated with respect to

the CIV in all countries in which the CIV is

registered, then the fund is considered to

be regulated.

The QCIV’s investors are limited to equity

investors, direct debt investors with greater than

US$50,000, Participating Foreign Financial

Institutions, Registered Deemed Compliant

Foreign Financial Institutions, retirement funds

classified as Exempt Beneficial Owners, US

Persons that are not Specified US Persons, Non-

Reporting IGA Foreign Financial Institutions, or

other Exempt Beneficial Owners.

Each member of the group of Related Entities

must be a Participating Foreign Financial

Institution, Registered Deemed Compliant

Foreign Financial Institution, Sponsored

Foreign Financial Institution, Non-Reporting IGA

Foreign Financial Institution, or an Exempt

Beneficial Owner.

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EY observation

Analysis of a fund’s investors to ensure the

qualifications above are met is crucial, as well as

implementing safeguards to ensure no future

investors who might taint the fund’s QCIV status are

allowed into the fund.

Sponsored Investment Entities

Any FI which is an Investment Entity may appoint

a Sponsor to take on its due diligence, registration

and reporting obligations — though not permitted

for an Entity that is a Qualified Intermediary (QI),

Withholding Foreign Partnership (WP), or

Withholding Foreign Trust (WT) under the

US regulations.

If a Sponsoring Entity is appointed, it must register as

such with the IRS under the US Agreement, and take on

all due diligence and reporting obligations of the

Sponsored Investment Entity. This includes account

identification and documentation for new investors

as well.

In classifying an account as New or Pre-Existing, a

Sponsor acting on behalf of a range of CIVs can look

to whether the account is new to the Sponsor and

not the CIV itself. This will alleviate duplicative

document requests of the same investors invested in

more than one CIV. Where a Sponsor is able to link

accounts in this manner, the accounts will also need

to be aggregated.

If a Sponsoring Entity is appointed, there is no

requirement to register the Sponsored Entity, unless

it has a US Reportable Account. If such an account is

identified, the Sponsored Entity must register and

obtain its own GIIN on or before the later of

31 December 2015 or 90 days after the reportable

account is identified.

EY observation

Where a Sponsoring Entity is the Sponsor for funds

in multiple jurisdictions, the Sponsor would need to

report on behalf of each fund based on the reporting

requirements in each fund’s jurisdiction. One fund

may be in a Model 1 IGA location and thus report to

the TIA, while another fund may be in a non-IGA

location and thus the Sponsor would need to report

directly to the IRS.

The updated guidance notes add a final section

(7.10), covering the requirements of Transfer

Agents or Service Providers in obtaining due

diligence documentation from investors with

multiple accounts with that Transfer Agent of

Service Provider. Where such an Agent or

Provider has been appointed a FATCA services

provider to a number of FIs, they are not

required to obtain documentation for each

account held by the same investor. They may

obtain one set of FATCA due-diligence

documentation for an investor to validate the

same investor’s status in all FIs serviced by that

Transfer Agent.

Chapter 8: Other specific vehicles Securitization or structured finance vehicles

A typical structure consists of an Issuing Entity

(SPV), Noteholder, Seller or Originator, Trustee,

Collateral Manager (CLO), Swap Counterparty, and

other service providers. Whether any of these

entities meets the definition of an FI under section 2

should be reviewed.

However, issuing entities are likely to be classified

as Investment Entities and typically would be a

(1) collateralized loan obligation or CLO transaction,

(2) Cat bond or Insurance Linked Securities

transaction, and (3) a repackaging or other form of

structured finance transaction as detailed in

section 8.2. The updated guidance notes have

added collateralized debt obligation (CDO) or

CDO transaction as a fourth type of entity for this

section. This section also adds additional definitions

around SPVs.

Entities that may not fall within the definition of an

Investment Entity include Asset Finance SPVs. These

entities typically own one or more aircraft, ships or

other form of moveable asset and finance the

acquisition through debt financing. An Asset

Finance SPV would typically be categorized as a

Passive NFFE.

EY observation

As a Passive NFFE, an Asset Finance SPV would still

be required to certify if it had any financial accounts

held by Specified US Persons or Non-US Entities with

Controlling Persons that are Specified US Persons.

11

Segregated Portfolio Companies, Umbrella Funds and Multi-issuance Entities

Section 8.4 provides insight on these entities. These

types of entities may be treated as a whole and it is

not necessary to treat each separately, unless the

Entity wishes to do so.

EY observation

This section provides flexibility for these types of

entities to either treat them as one or separately for

registration and reporting. The determination should

be made by these structures after consideration of

the relevant issues for each situation. To avoid

potential certification issues with brokers or

custodians in relation to each portfolio, fund or

series, it may be more practical, in some cases, to

treat each separately and register each separately

so that, for US Agreement purposes, a GIIN is

acquired by each to be provided with any Form W-

8BEN-E that might be requested by third parties.

Chapter 9: NFFEs Active NFFEs (as defined in section 9.3) and Passive

NFFEs (as defined in section 9.2) have no

registration or reporting requirements to the TIA or

the IRS. Passive NFFEs may however choose to be

“Direct Reporting NFFEs” and “Sponsored Direct

Reporting NFFEs” under the modified US regulations.

Active and Passive NFFEs are required to determine

their FATCA/IGA classification and self-certify to any

FI that maintains accounts held by that NFFE.

Passive NFFEs may be required to obtain a self-

certification from a Controlling Person of that NFFE.

An FI will have to report Financial Accounts held by

Passive NFFEs with Controlling Persons that are

Specified Persons.

The updated guidance notes, to be in line with the US

Regulation changes, have added the new Passive

NFFE category (Direct Reporting NFFEs and

Sponsored Direct Reporting NFFEs) in section 9.4.

“Controlling Person” means a natural person who

exercises direct or indirect control over an Entity.

For trusts, this includes the settlor, trustees,

protector, identifiable beneficiary or class of

beneficiaries, and other natural persons exercising

ultimate control over the trust.

In relation only to NFFEs, a 25% ownership threshold

applies for companies, partnerships, trusts

and foundations.

EY observation

Details around the income requirements for Active

versus Passive NFFE status, as well as examples, are

provided in sections 9.3 through 9.5 and section 9.8.

Chapter 10: Financial accounts An FI , unless exempt, must identify (1) whether it

maintains any Financial Accounts, (2) the type of

Financial Accounts maintained, and (3) whether the

account holder of the Financial Accounts is a

Specified Person or a Passive NFFE with one or more

Controlling Persons who are Specified Persons.

An FI acting as an executing broker (simply executing

trading instructions, or receiving/transmitting

trading instructions to another executing broker),

and not a custodian will not be required to treat

those facilities as a Financial Account.

The updated guidance notes have added a new

section 10.1.3, which provides clarity around when

accounts might cease to be Reportable Accounts.

Joint accounts

Where a Financial Account is jointly held, the value

will be attributed in full to each joint holder of the

account. This applies to both aggregation and

reporting requirements.

Products exempt from being Financial Accounts

include (1) retirement accounts and products as set

out in Annex II of the Agreements, (2) certain other

tax favored accounts or products, for which there

are none currently identified specific to the Cayman

Islands, (3) accounts of deceased persons, as long as

certification of death is held by the FI, and

(4) intermediary/escrow accounts established for

certain purposes as defined in section 10.15.

12

Dormant accounts

Dormant accounts fall under the reporting

requirements for recalcitrant account holders.

FIs may use their current operating policy for

classifying these accounts or, if not applicable,

the following may be used in classifying an account

as dormant:

No activity in the past three years

Account holder has not contacted FI regarding

any account in past six years

Account is not linked to an active account held

by the same account holder

Dormant funds

The updated guidance notes have expanded the

Dormant Funds section (10.18.1), renaming it

“Dormant and Liquidating Investment Entities”. This

updated section better defines the requirements

when an Entity that has been an Investment Entity is

(1) closed, or (2) a Liquidator has been formally

appointed but there remain residual assets and

debtors and realization or recovery actions are being

pursued. In these situations, the Investment Entity

will not be an Investment Entity for the purposes of

the Agreements. If the Entity was closed or in

liquidation before 30 June 2014, then no

registration or reporting is required in relation to

that business. However, when the Entity is no longer

considered an Investment Entity after 1 July 2014, a

final return should be made in accordance with the

reporting requirements if applicable by or before the

next reporting deadline.

Chapter 11: Registration Registration is a requirement under the US

Agreement and not a current requirement under the

UK Agreement. As part of this process, the FI will

receive a GIIN.

The following have registration requirements:

All Cayman Islands Reporting Financial

Institutions and Registered Deemed Compliant

Financial Institutions as defined under the

US Agreement

Any FI with a local client base that has a

reporting obligation due to some

reportable accounts

Any Sponsored Investment Entity that has

reportable accounts will need to be registered by

its Sponsoring Entity

FIs in a Model 1 IGA jurisdiction, such as the Cayman

Islands, were not required to provide verification of a

GIIN to withholding agents prior to 1 January 2015.

Prior to that date, an FI could have confirmed its

status by any of the following:

Providing a Withholding Certificate

Providing FATCA W-8BEN-E certifying the

Entity’s FATCA classification and other

required information

Note that a Reporting FI in a Model 1 IGA must have

registered prior to 1 July 2014 if (1) it maintains

one or more branches (other than a limited branch

or US branch) in non-Model 1 IGA locations, (2) if it

is renewing Qualified Intermediary (QI), Withholding

Foreign Partnership (WP), or Withholding Foreign

Trust (WT) Agreement, and (3) if it intends to be

a Lead FI for one or more Member Financial

Institutions that are not established in, and

operating exclusively in, other Model 1

IGA jurisdictions.

EY observation

Reporting Financial Institutions should still consider

registering to obtain their GIIN. This may be a

preferable option to avoid any delays or run afoul of

any internal policies or investor requirements. To

have been on the 1 January 2015 IRS List, a

Reporting Financial Institution should have

registered and obtained a GIIN by 22 December

2014. Failure to have been registered by 1 January

2015 would result in an Entity not being compliant

with the Model 1 IGA and thus subject to withholding

as of 1 January 2015 by withholding agents. Now that

the IRS has issued the W-8BEN-E form and

instructions, it is recommended that this be the

document completed and submitted to withholding

agents. The Cayman Islands is allowing self-

certification forms to be used in lieu of US tax forms

for FATCA compliance; however, US withholding

agents may still require the US forms for compliance

with US regulations separate from FATCA.

13

Chapter 12: Due diligence General requirements FIs are responsible for identification and reporting of

Financial Accounts held by Specified Persons or by

Passive NFFEs with one or more Controlling Persons

who are Specified Persons or by Non-Participating

Financial Institutions.

FIs can rely on third-party providers to fulfill their

obligations, but the obligations remain the

responsibility of the FI and any failure to comply with

the regulations falls on the FI.

FIs must follow one or more of the following

processes for account holder identification,

depending on whether the account holder is an

individual/entity and whether the account is pre-

existing/new:

Indicia Search – this may include information held

for Cayman Islands AML/CFT (Anti-Money

Laundering/Countering the Financing of

Terrorism) rules

Self-certification – from account holder or

Controlling Person of a Passive NFFE

Publicly available information (entities only)

Self-certifications As part of the identification process, FIs can rely on

self-certifications in relation to individuals and

entities as follows:

In relation to Individual account holders, self-

certification may be used to (a) capture name,

permanent residence address and country of

birth, (b) establish countries where new account

holder is resident for tax purposes, (c) to obtain

a TIN or similar number from new account

holders for each country where they are resident

for tax purposes, and (d) show that an individual

is not in fact a resident for tax purposes of a

country, even if indicia are found indicating such

residency in relation to a low-value or a high-

value Pre-Existing Account that they hold.

In relation to Entity account holders, self-

certification must be used if the FI cannot

determine status from information in its

possession or readily available to (a) capture

name and country of incorporation or

organization, (b) establish status of the entity

where not reasonably determined that the

account holder is not a Specified Person,

(c) establish status of FI that is neither a Cayman

Islands FI nor an FI in an IGA jurisdiction,

(d) establish whether an entity is a Passive NFFE

or (e) establish status of a Controlling Person of

a Passive NFFE and whether he/she is resident in

a relevant country for tax purposes.

The form must be signed and dated by the account

holder, and can be in paper or electronic format. It

can include the use of withholding certificates (i.e.,

US Forms W-8/W-9).

Alternatively, the Cayman Islands Government issued

self-certification form templates for industry usage in

July of 2014. A specific form for Individuals and

Entities was developed by the FATCA Working Group

and the Cayman Islands TIA is satisfied that these

forms may be used for the purposes of FATCA

Compliance. Cayman Islands FIs may use these forms

as a basis for self-certification and adapt or modify

them as necessary to suit their own usage. These

forms can be found on the following website:

http://www.tia.gov.ky/html/assistance.htm

A self-certification cannot be relied upon if an FI has

reason to believe it is incorrect, unreliable, or if there

is a change in circumstances regarding the account

holder’s status.

The updated guidance notes have added new

sections, 12.2.1 and 12.2.2, which provide

additional insight on the requirements where an FI

already holds a self-certification for an account

holder, and the timing of self-certifications.

For all new individual accounts, there is no

prescriptive wording that must be used for such

self-certification. However, a determination of

whether or not the individual is a citizen or resident

of the US must be able to be made from the

certification. It should be sufficient for an account

holder to confirm they are or are not resident in the

US for tax purposes, and that they are or are not

a US citizen. For the UK Agreement, residence is

important and citizenship is not relevant.

Examples of how to administer the collection of

14

self-certifications are provided in the guidance

notes in section 12.4 (e.g., telephone applications,

online applications and paper applications).

For Pre-Existing individual accounts, FIs that

identify US indicia while performing due diligence of

accounts must report on these accounts unless self-

certification proving that the account holder is not a

US person, such as IRS Form W-8BEN or approved

self-certification form, is obtained and valid.

For New Entity Accounts, unless the FI can identify

or rely on information it holds or is publicly

available, it must obtain self-certification from

Entity account holders identified as the following:

(1) Specified Person, (2) FI that is neither a Cayman

Islands FI, an FI in an IGA jurisdiction, a

Participating Financial Institution, a Deemed

Compliant FI or an Exempt Beneficial Owner, or

(3) a Passive NFFE.

If the Entity is an NFFE and is passive, FIs must

identify Controlling Persons and obtain self-

certification from them to determine whether or not

they are US persons.

For Pre-Existing Entity Accounts, self-certification

may be obtained where an Entity is identified as a

possible US person in due diligence so as to allow the

Entity to confirm or deny that they are or are not a

US person.1 For Pre-Existing Entity Accounts self-

certification must be obtained:

Where an Entity is an FI not domiciled in the

Cayman Islands or another partner jurisdiction

unless the FI is able to otherwise verify the

Entity’s FATCA status

Where an Entity is a passive NFFE (unless

information is available to determine that the

Entity is an active NFFE)

Where one or more passive NFFEs hold the

account and the account’s balance exceeds

US$1 million

1 Note that the account is reportable, unless valid self-

certification is received confirming that the Entity is not a US person, i.e., an IRS Form W-8BEN-E or self-certification form approved for use by the Cayman Islands Government. In practice, therefore, it would seem essential for an FI to make a reasonable effort to give the account holder an opportunity to self-certify.

IRS Forms W-8 and W-9 may be used for self-

certification and, as stated above, the Cayman

Islands Government has issued self-certification

templates for industry usage which may be used for

the purposes of FATCA Compliance. It is important

to note, however, many institutions may still be

required to submit the US forms (W-8 and W-9) to US

withholding agents who are required by US law to

receive the IRS forms for non-FATCA reporting

requirements on non-US account holders.

Section 12.8 details confirming the reasonableness

of self-certifications by an FI. An FI receiving a self-

certification must consider other information it has

obtained concerning the account holder, including

any documentation collected pursuant to Anti-

Money Laundering (AML) and Know Your Client

(KYC) procedures to determine whether the self-

certification is reasonable. If any apparent conflicts

are evident, then further inquiries are required by

the FI. If a third party performs AML for an FI, the FI

may request that the third party obtain self-

certifications for purposes of the legislation. The

third party should then confirm the reasonableness

of the self-certification.

Chapter 13: Pre-Existing individual accounts Chapter 13 distinguishes accounts as (1) exempt by

threshold, (2) exempt Cash Value Insurance and

Annuity contracts unable to be sold to US residents

(US Agreement only), (3) low value, and (4) high

value.

The assignment of an insurance contract will be

treated as a new account and should be treated

under the review procedures for new accounts.

Reportable depository accounts must be reviewed

annually for the US$50,000 threshold (assuming the

de minimis limit is applicable) and if, in a subsequent

year, these accounts fall below the threshold, the

account is no longer reportable.

Low Value Accounts are those with a balance or

value exceeding US$50,000 (or US$250,000 for

Cash Value Insurance and Annuity Contracts), but do

not exceed US$1,000,000.

15

For Low Value Accounts, electronically searchable

data must be reviewed by the FI for any of the seven

potential US indicia items described in section 13.6

for the US Agreement, and any US indicia may be

cured as long as the requirement for each US indicia

is met in section 13.6.2.

Section 13.6.3 details the UK indicia required to be

searched for under the UK Agreement, while section

13.6.4 details how UK indicia may be cured under

the UK Agreement.

For a change in circumstance that gives rise to US or

UK indicia, the FI must obtain self-certification from

the account holder; otherwise, the account should be

treated as reportable. If the account holder does not

respond to requests for a self-certification, then the

FI should treat the account as a reportable account

until the FI is provided with the necessary

information to cure or repair the indicia.

The guidance notes state that Pre-Existing Low

Value Accounts are reportable in the year that they

are identified as reportable in the due diligence

procedures (i.e., if found to be reportable in 2015

only reportable beginning in the return for 2015).

High Value Accounts are Pre-Existing Accounts with

a balance or value exceeding US$1,000,000 at

30 June 2014 or at 31 December of any

subsequent year.

For High Value Accounts, electronically searchable

data must be reviewed in the same manner as for

Low Value Accounts for both the US and UK

Agreements. Section 13.9 details that a paper

record search will be necessary unless the electronic

search confirms the six items listed for the US

Agreement. A paper record search would need to

review the five items detailed in this section for any

US indicia.

Section 13.9 also details that, under the UK

Agreement, a paper record search will be necessary

unless the electronic search confirms the four items

listed. Should a paper search be required, there are

five items required to be reviewed for UK indicia

under the UK Agreement.

An FI can rely on the review of a High Value Account

performed by a third-party distributor where there is

a contract obligating the distributor to perform

the review.

An FI is not required to do a paper search for any

Pre-Existing Individual Account for which it has

retained a withholding certificate and acceptable

documentary evidence establishing Non-US status of

the account holder.

Where one or more indicia is found and no cure or

repair can be applied, an FI must treat the account

as a Reportable Account for the current and all

subsequent years.

Any accounts that the FI obtained documentation for

as a Qualified Intermediary (QI) do not have to be

reviewed in an electronic search or a paper search

(relationship manager inquiries, when applicable, are

still required).

Section 13.11 details the obligations and

responsibilities of a Relationship Manager in terms of

a High Value Account. This section also defines who

a Relationship Manager is for these purposes. If the

Relationship Manager has actual knowledge that an

account holder is a Specified Person, then the

account must be reported unless the indicia can

be cured.

Timing of reviews (Low Value Accounts)

Completed by 30 June 2016 for accounts meeting

this criteria as of 30 June 2014.

Timing of reviews (High Value Accounts) Completed by 30 June 2015 for accounts meeting

this criteria as of 30 June 2014.

Chapter 14: New individual accounts The following requirements are applicable for any new

individual account opened on or after 1 July 2014.

The FI must obtain a TIN for Specified US Persons or

date of birth and a National Insurance Number for

Specified UK Persons.

For new accounts or Pre-Existing Accounts, there is no

need to re-document the account as long as (1) the

appropriate due diligence has been carried out or there

16

is reliable evidence that the appropriate due diligence

requirements are in the process of being carried out for

the Pre-Existing Account, and (2) the accounts are

treated as linked or as a single account for purposes of

applying the due diligence requirements. Change in

circumstance rules and aggregation rules apply to

this situation.

For all new accounts (aside from depository accounts

under US$50,000 where an election has been made to

exempt and cash value insurance contracts under

US$50,000), a self-certification must be obtained

and confirmed for reasonableness against AML/KYC

documentation. In the absence of valid

self-certification, the account would be a

reportable account.

Where information already held by an FI conflicts

with any statements or self-certifications, or if the FI

has reason to know that the self-certification or

documentary evidence is incorrect, the FI may not

rely on that evidence of self-certification. “Reason to

know” that a self-certification or other

documentation is unreliable or incorrect exists

where, if based on the relevant facts, a reasonably

prudent person would know this to be the case.

Chapter 15: Pre-Existing Entity Accounts Entity accounts in existence at 30 June 2014 are

deemed to be Pre-Existing; however, recent

regulations offer FIs the option to elect to substitute

a later date.

EY observation

Cayman Islands Regulations for the US Agreement

under section 5(5)(f) state that a New Entity

Account is a financial account opened after 30 June

2014 except insofar as a Reporting Financial

Institution has elected to substitute a date no later

than 31 December 2014 for the 30 June 2014 date.

Steps for determination of FATCA classification

status must be followed in order. There are six

separate classifications for Pre-Existing Entity

Accounts as listed in section 15.2 of the

guidance notes.

If the account holder is a Non-Participating FI, only

payments made to that Non-Participating FI will be

reportable. Similarly, an Entity Account will also be

reportable where self-certification is not provided or

the Entity’s status cannot be determined from

currently held or publicly available information.

An FI may rely on previously recorded information

and standardized industry codes for determining an

Entity’s status. Standardized industry codes may not

be relied upon if US or UK indicia is found per

sections 13.6.1 and 13.6.3, respectively. If indicia is

found, the FI may only treat the Entity as non-

reportable if it obtains a self-certification from the

Entity and one form of acceptable documentary

evidence establishing the Entity’s non-US or non-UK

status (e.g., Certificate of Incorporation).

Sections 15.6 through 15.9 detail the requirements

for identification of entities as the following types:

(1) Specified Persons, (2) FIs, (3) Non-Participating

Financial Institutions (US Agreement only), and

(4) NFFEs. Timing of reviews

If the balance of an account has been exempted

because it does not exceed US$250,000, then if it

increases to exceed US$1 million in a year

subsequent to 2013, the FI must perform due

diligence as prescribed in this chapter by 30 June of

the following year after 30 June 2016.

Chapter 16: New Entity Accounts A New Entity Account is an account opened by or for

an Entity on or after 1 July 2014; however, recent

regulations offer FIs the option to elect to substitute

a later date.

EY observation

As previously referenced under Chapter 15, the US

Agreement states that a New Entity Account is a

financial account opened after 30 June 2014,

except insofar as a Reporting Financial Institution

has elected to substitute a date no later than

31 December 2014 for the 30 June 2014 date.

Steps for determination of FATCA classification

status must be followed in order. There are six

separate classifications for New Entity Accounts as

listed in section 16.2 of the guidance notes.

17

Reporting on New Entity Accounts follows similar

guidelines as Pre-Existing Entity Accounts and is

detailed under section 16.2.

There are no threshold exemptions that apply for

New Entity Accounts (there is an exception related

to credit card accounts where the FI has policies to

prevent account holders from establishing credit

balances in excess of US$50,000).

New accounts for Pre-Existing Entity account holders

may be treated by the FI as one account for

purposes of applying AML/KYC due diligence. The FI

may choose to apply identification and

documentation procedures for either Pre-Existing or

New Accounts to determine the classification for any

Accounts opened on or after 1 July 2014 by the

same Entity.

Sections 16.5 through 16.8 detail the requirements

for identification of entities as the following types:

(1) Financial Institutions, (2) Non-Participating

Financial Institutions (US Agreement only),

(3) Specified Persons, and (4) Non-Financial

Foreign Entities.

Chapter 17: Reporting obligations

FIs that have identified Reportable Accounts must

report certain information on those accounts to the

TIA per the timetable detailed in section 17.5.

The required information to be reported is detailed

in section 17.1 and is specific to the type of account

and the Specified Person or Controlling Person of

the account.

For Specified Persons and Controlling Persons of

certain Entity Accounts, the information to be

reported is: (a) name, (b) address, (c) TIN for

Specified US Persons, (d) date of birth and National

Insurance Number for Specified UK Persons, (e) the

account number or functional equivalent if no

account number exists, (f) the name and GIIN of the

Reporting Cayman Islands FI, and (g) the account

balance or value at calendar year end or, if the

account was closed, the value immediately before

account closure.

For the UK Agreement, where the Reporting Cayman

Islands FI does not have a GIIN it will report a local

reference number. The local reference number will

be generated by the TIA during the online

notification process by the FI.

In addition to points (a) to (g) above, the following is

required to be reported for a Custodial Account for

the calendar year in question:

Gross total interest paid or credited to the

account

Gross total dividends paid or credited to the

account

Gross total amount of other income paid or

credited to the account

Total gross proceeds from sale or redemption of

property paid or credited to the account

The first three items are first reportable in respect to

the Reporting Year 2015 onwards, while gross proceeds

are not required to be reported until the Reporting

Year 2016 onwards.

For Depository Accounts, in addition to points (a) to (g)

above, the total amount of gross interest paid or credited

in the calendar year must be reported for the Reporting

Year 2015 onwards.

For Cash Value Insurance Contracts, In addition to

points (a) to (f) above, the following must be reported for

the Reporting Year 2015 onwards:

The annual surrender value amount of the

account reported to the policyholder

The amount calculated by the Specified

Insurance Company at 31 December and any

partial surrender taken during the policy year

The address to be reported for an account of a

Specified Person is the residence address of record

according to the Reporting FI or, if no residence

address, the mailing address used by the Reporting FI.

For Pre-Existing Individual Accounts that are

reportable, a US TIN under the US Agreement (or date

of birth and National Insurance number under the UK

Agreement) needs to be provided only if it exists in the

records of the Reporting FI and, in absence of a TIN, a

birth date should be provided if that information is held

by the FI.

18

The Reporting FI is required to obtain a US TIN for Pre-

Existing Individual Accounts by 1 January 2017 under

the US Agreement (or National Insurance Number

under the UK Agreement).

For New Individual Accounts identified as Reportable

Accounts from 1 July 2014 onwards, a self-

certification must be obtained. Under the US

Agreement, this can be the IRS Form W-9 or another

approved self-certification form that meets certain

requirements. Note that a New Entity Account is a

financial account opened after 30 June 2014 except

insofar as the Reporting FI has elected to substitute a

date no later than 31 December 2014 for the 30 June

2014 date.

If the account holder fails to provide a US TIN or

evidence of Non-US status and the account becomes

active, the account is to be treated as reportable.

An FI is not obligated to verify that any US or UK

related information is correct, and will not be held

accountable where information provided by an

individual proves to be inaccurate and the FI had no

reason to know.

Account balance or value

The balance or value may be reported in USD or in the

currency in which the account is denominated. The

balance or value will be that shown on 31 December

unless the account is closed prior to that date.

For jointly held Financial Accounts, the balance or

value reported in respect of the Specified Person is

the entire balance or value of the account. This is

similar for Controlling Persons of NFFEs that jointly

hold accounts.

Nil returns

Reporting Cayman Islands FIs with no Reportable

Accounts are required to make a report to that effect

to the TIA. This is required under both the US and UK

Regulations.

Multiple Financial Institutions – duplicate reporting

Where multiple FIs have reporting obligations in

respect to the same account, there is no need for the

Cayman Islands FI to report the same account where

it has actual knowledge that another FI has or will be

reporting the account (regardless of whether that FI

is a Cayman Island FI or not). “Actual knowledge” is

defined as holding written confirmation from the

Reporting FI in the other jurisdiction that the

Financial Account has been reported for FATCA

purposes or under an agreement equivalent to the

UK Agreement. The Cayman Islands FI is still

responsible for ensuring the account has been

reported and subject to any fines or penalties if it is

determined no report has been made.

Reporting on Non-Participating Foreign Financial

Institutions (NPFFIs) (US Agreement only) – Where an

FI makes payments to an NPFFI, it is required to

report the name and aggregate value of payments

made to each NPFFI for the 2015 and 2016 years.

The requirement is a temporary solution to the

requirement to withhold on pass-through payments

under the US provisions. A Cayman Islands FI that

complies with the above reporting requirements will not

be subject to withholding. The payments required to be

reported are detailed in section 17.6, as well as any

payments that are excepted from NPFFI reporting

(section 17.6.1) and other reporting considerations for

NPFFI payments (section 17.6.2).

EY observation

Under the current US Agreement “pass-through

payment withholding” is scheduled to take effect as of

1 January 2017, though this could be eliminated or

further delayed. Whether the NPFFI reporting

requirements continue after 2016 should be

considered by FIs in developing their tax information

reporting systems and the account holder

identification process.

Third-party service providers may be used to undertake

reporting obligations for Reporting Cayman Islands FIs,

but the responsibility for ensuring that the reporting is

complete, correct and timely remains with the FI.

Reporting Cayman Islands FIs will report the required

data electronically to the TIA in the required format.

Penalties will be applied for failure to comply and are

set out in the Regulations.

19

Chapter 18: Compliance Minor errors In the event that information reported is corrupted or

incomplete, the recipient country will notify the TIA.

Minor errors in compliance include data fields missing

or incomplete, data that has been corrupted and use of

an incompatible format.

Compliance measures may be exercised by the TIA if

the error is considered to contravene the Regulations.

Continued or repeated administrative or minor errors

could be considered as significant non-compliance

where they disrupt and prevent transfer of

the information. Significant non-compliance Significant non-compliance may be determined by the

IRS (in respect of the US Agreement), HMRC (in respect

of the UK Agreement) or the TIA.

Examples of significant non-compliance include:

(1) repeated failure to file a return or repeated late

filing, (2) ongoing or repeated failure to register or

establish appropriate governance or due diligence

processes, (3) the intentional provision of substantially

incorrect information, and (4) the deliberate or

negligent omission of required information.

Where one Competent Authority notifies the other of

significant non-compliance, there is an 18-month period

in which the FI must resolve the non-compliance.

Where the TIA is notified of significant non-compliance

by a Reporting Cayman Islands FI, the TIA may exercise

any compliance measures under the Regulations. The

TIA will also engage with the Reporting Cayman Islands

FI to discuss the non-compliance, remedies/solutions to

prevent further non-compliance, and adopt measures

and a timetable to resolve the non-compliance.

In the event that the issues remain unresolved after

18 months, then the Reporting Cayman Islands FI will

be treated as a Non-Participating Financial Institution

(NPFI) under the US Agreement. There is no equivalent

sanction under the UK Agreement, but compliance

measures may be exercised by the TIA under

the Regulations.

EY observation

It is important to remember that while third-party

service providers may be relied upon to meet FATCA

obligations, FIs will still remain accountable.

Chapter 19: Prevention of avoidance

The Regulations (both US and UK) detail anti-avoidance

measures directed at arrangements taken by any person

to avoid the obligations required by the Regulations.

The intention is that the term “arrangements” will be

broadly interpreted, with the effect of the rule being that

the Regulations will apply as if the arrangements had not

been entered into.

Specific details on the penalties related to non-compliance

can be found in the Cayman Islands Tax Information

Authority Regulations enacted for both the US and

UK Agreements.

20

Conclusion The guidance notes, taking input from both Cayman Islands

institutions and the global financial industry at large, were

issued to provide clarity and understanding around this

complex regulatory initiative. An institution is thus advised to

review, in consultation with its advisors, the actual Cayman

Islands guidance notes, as well as the regulations and

Cayman Islands IGAs with the US and UK for ultimately

determining its compliance requirements under FATCA and

other information reporting regimes.

As the global tax information reporting initiatives evolve

and regulations conform, the Cayman Islands guidance notes

will be updated on a regular basis around key issues

and terms that require further insight to assist industry

with compliance.

Appendix 1 – Relevant documents

The following provides links to the US Agreement and the

UK Agreement documents as follows:

UK and UK Intergovernmental Agreements

Tax Information Exchange Agreement

US Treasury FATCA Regulations

The TIA (United States) Regulations and the TIA

(United Kingdom) Regulations

Double Tax Arrangement between the UK and

Cayman Islands

Appendix 2 – UK Agreement: specific elements

Appendix 2 of the Cayman Islands IGA guidance notes

provides details on Annex III of the UK Agreement’s

Alternative Reporting Regime (ARR) for UK Resident

Non-Domiciled Individuals.

In the meantime, if you have any questions, please contact

a member of our FATCA team:

Jun Li

Partner, Tax

Ernst & Young LLP (New York)

+1 212 773 6522

jun.li@ey.com

Dmitri Semenov

Partner, Tax

Ernst & Young LLP (New York)

+1 212 773 2552

dmitri.semenov@ey.com

Bill Bailey

Partner, Tax

Ernst & Young Ltd. (Bermuda)

+1 441 294 5319

bill.bailey@bm.ey.com

Chris Larkin

Senior Manager, Tax

Ernst & Young Ltd. (Cayman Islands)

+1 345 814 8919

chris.larkin@ky.ey.com

Blaise Ting

Senior Manager, Tax

Ernst & Young Ltd. (Cayman Islands)

+1 345 814 8918

blaise.ting@ky.ey.com

Mike Mannisto

Partner, Assurance

Ernst & Young Ltd. (Cayman Islands)

+1 345 814 9003

mike.mannisto@ky.ey.com

Chris Maiato

Principal, Advisory

Ernst & Young Ltd. (Bermuda)

+1 441 294 5346

chris.maiato@bm.ey.com

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