Cayman Islands Iga Agreement

The information exchange agreement requires Cayman`s financial institutions to provide direct information to the Cayman Islands government regarding bank accounts and non-financial organizations held by U.S. citizens. The information provided is forwarded to the U.S. Internal Revenue Service (IRS). On 5 November 2013, the Cayman Islands government signed an intergovernmental agreement with the United Kingdom (UK IGA) and the U.S. IGA, the IGA, which aims to improve international tax compliance, which provides a framework for the implementation of a UK TAX reporting system (UK FATCA) in the Cayman Islands, comparable to the US FATCA. The information exchange agreement is based on the Model 1 fatCA IgA, which is becoming a global standard for the automatic multilateral exchange of tax information. FATCA`s Model 2 IGA would allow Cayman financial institutions to report directly to the IRS. FATCA requires U.S. withholding agents to recover 30% of payments from qualified U.S. sources, including U.S.

source interest and dividends paid by these withholding agents to an FFI, unless the FFI has entered into an agreement with the IRS, directly or indirectly through the Intergovernmental Agreement (IGA) mechanism. The IGA mechanism provides substantial benefits to Cayman FFI over a direct IRS reporting system under a bilateral agreement: the Foreign Account Tax Compliance Act („US FATCA”) was passed in 2010 in the United States to reduce offshore tax evasion collected by U.S. persons holding assets through offshore accounts that are not subject to the U.S. Internal Services Income Reporting (IRS). The U.S. FATCA requires a foreign company that is a foreign financial institution („financial institution” or „FI”) to either enter into an agreement with the IRS for such a report, or (ii) to comply with local laws that implement an intergovernmental agreement (IGA). If a financial institution does not comply with the U.S. FATCA, a 30% withholding tax is deducted from that financial institution`s income from the United States. Financial institutions are also required to close accounts on which their U.S. clients do not provide the information they collect. Model 1 IGA (published on 26 July 2012 and amended on 14 November 2012) provides that FFI headquartered in the IGA partner country identify US accounts in accordance with the duty of care imposed by the partner country and provide certain information to the relevant government authorities of the partner country.

The information is then automatically exchanged by the partner country with the IRS to provide the same quality and quantity of information that the IRS would receive from a participating FFI under a bilateral agreement. 7 „non-participating financial institution”: a financial institution that does not comply with the U.S. FATCA because (i) fi is in a jurisdiction that does not have an IGA and has no agreement with the IRS, or (ii) that FI be considered by the IRS as a non-participating financial institution. As noted in our previous updates to the Foreign Account Tax Compliance Act („FATCA”), the Cayman Islands government and the U.S. Treasury officially signed the FATCA Model 1 („IGA”) non-reciprocal intergovernmental agreement on November 29, 2013. The two governments also signed an updated agreement on the exchange of tax information, which will replace the agreement signed in 2001. The signing of the Model 1 IGA with the United States follows the recent signing of an equivalent agreement with the United Kingdom on 5 November 2013. Tax cooperation between the United States and the Cayman Islands began in 2014, when the agreement on the automatic exchange of tax information came into force between the Cayman Islands and the United States, in accordance with the U.S. Account Compliance Act (FATCA).