Cayman Islands
This report analyses the implementation of the AEOI Standard in the Cayman Islands with respect to the requirements of the AEOI Terms of Reference. It assesses both the legal frameworks put in place to implement the AEOI Standard and the effectiveness of the implementation of the AEOI Standard in practice.
The methodology used for the peer reviews and that therefore underpins this report is outlined in Chapter 2.
Overall findings
AEOI legal framework
The Cayman Islands’ legal framework implementing the AEOI Standard is in place and is consistent with the requirements of the AEOI Terms of Reference. This includes the Cayman Islands’ domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1) and its international legal framework to exchange the information with all of the Cayman Islands’ Interested Appropriate Partners (CR2).
Effectiveness of AEOI in practice
The Cayman Islands’ implementation of the AEOI Standard is on track with respect to the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice. This includes ensuring Reporting Financial Institutions correctly conduct the due diligence and reporting procedures (CR1) and exchanging the information in an effective and timely manner (CR2). The Cayman Islands is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
Overall rating in relation to the effectiveness in practice: On Track
General context
The Cayman Islands commenced exchanges under the AEOI Standard on a non-reciprocal basis in 2017 (i.e. it sends but does not receive information).
In order to provide for Reporting Financial Institutions to collect and report the information to be exchanged, the Cayman Islands:
introduced the Tax Information Authority (International Tax Compliance) (Common Reporting Standard) Regulations, (2018 Revision), further amended in 2020;
published further guidance, most recently revised March 2018, which is not legally binding.
Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 January 2016. With respect to Preexisting Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts by 31 December 2016 and on Lower Value Individual Accounts and Entity Accounts by 31 December 2017.
Following the initial Global Forum peer review, the Cayman Islands amended its legislative framework to address an issue identified, effective from 15 March 2018.
With respect to the exchange of information under the AEOI Standard, the Cayman Islands:
has the Convention on Mutual Administrative Assistance in Tax Matters in place1 and activated the associated CRS Multilateral Competent Authority Agreement in time for exchanges in 2017; and
put in place three bilateral agreements.2
Table 1 sets out the number of Financial Institutions in the Cayman Islands that reported information on Financial Accounts in 2021 as defined in the AEOI Standard (essentially because they maintained Financial Accounts for Account Holders, or that were related to Controlling Persons, resident in a Reportable Jurisdiction). It also sets out the number of Financial Accounts that they reported in 2021. In this regard, it should be noted that the Cayman Islands requires the reporting of Financial Accounts based on a prescribed list of exchange partners and some accounts may be required to be reported more than once (e.g. jointly held accounts or accounts with multiple related Controlling Persons), which is reflected in the figures below. These figures provide key contextual information to the development and implementation of the Cayman Islands’ administrative compliance strategy, which is analysed in the subsequent sections of this report.
Table 2 sets out the number of exchange partners to which information was successfully sent by the Cayman Islands in the past few years (including where the necessary frameworks were in place, containing an obligation on Reporting Financial Institutions to report information, but no relevant Reportable Accounts were identified). These figures provide key contextual information in relation to the Cayman Islands’ exchanges in practice, which is also analysed in subsequent sections of this report.
In order to provide for the effective implementation of the AEOI Standard in the Cayman Islands:
the Department of International Tax Cooperation (DITC) has the responsibility to ensure the effective implementation of the due diligence and reporting obligations by Reporting Financial Institutions and for exchanging the information with the Cayman Islands’ exchange partners;
technical solutions necessary to receive and validate the information reported by Reporting Financial Institutions were put in place with the DITC’s AEOI Portal, through which returns may be uploaded by XML file; and
the Common Transmission System (CTS) is used for the exchange of the information, along with the associated file preparation and encryption requirements.
It should be noted that the review of the Cayman Islands’ legal frameworks implementing the AEOI Standard concluded with the determination that the Cayman Islands’ domestic and international legal frameworks are In Place. This has been taken into account when reviewing the effectiveness of the Cayman Islands’ implementation of the AEOI Standard in practice.
Findings and conclusions on the legal frameworks
The detailed findings and conclusions on the AEOI legal frameworks for the Cayman Islands are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Domestic legal framework: Jurisdictions should have a domestic legislative framework in place that requires all Reporting Financial Institutions to conduct the due diligence and reporting procedures in the CRS, and that provides for the effective implementation of the CRS as set out therein.
The Cayman Islands’ domestic legislative framework is in place and contains all of the key aspects of the CRS and its Commentary requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (SRs 1.1 – 1.3). It also provides for a framework to enforce the requirements (SR 1.4).
SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.
The Cayman Islands has defined the scope of Reporting Financial Institutions in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.2 Jurisdictions should define the scope of Financial Accounts and Reportable Accounts consistently with the CRS and incorporate the due diligence procedures to identify them.
The Cayman Islands has defined the scope of the Financial Accounts that are required to be reported in its domestic legislative framework and incorporated the due diligence procedures that must be applied to identify them in accordance with the CRS and its Commentary.
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
The Cayman Islands has incorporated the reporting requirements in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.4 Jurisdictions should have a legislative framework in place that allows for the enforcement of the requirements of the CRS in practice.
The Cayman Islands has a legislative framework in place to enforce the requirements in accordance with the CRS and its Commentary.
CR2 International legal framework: Jurisdictions should have exchange relationships in effect with all Interested Appropriate Partners as committed to and that provide for the exchange of information in accordance with the Model CAA.
The Cayman Islands’ international legal framework to exchange the information is in place, is consistent with the Model CAA and its Commentary and provides for exchange with all of the Cayman Islands’ Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from the Cayman Islands and that meet the required standard in relation to confidentiality and data safeguards) (SRs 2.1 – 2.3).
SR 2.1 Jurisdictions should have exchange agreements in effect with all Interested Appropriate Partners that permit the automatic exchange of CRS information.
The Cayman Islands has exchange agreements that permit the automatic exchange of CRS information in effect with all its Interested Appropriate Partners.
SR 2.2 Such an exchange agreement should be put in place without undue delay, following the receipt of an expression of interest from an Interested Appropriate Partner.
The Cayman Islands put in place its exchange agreements without undue delay.
SR 2.3 Jurisdictions should ensure that the exchange agreements in effect provide for the exchange of information in accordance with the requirements of the Model CAA.
The Cayman Islands’ exchange agreements provide for the exchange of information in accordance with the requirements of the Model CAA.
Findings and conclusions in relation to effectiveness in practice
The detailed findings and conclusions in relation to effectiveness in practice of AEOI for the Cayman Islands are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
The Cayman Islands’ implementation of the AEOI Standard is on track with respect to ensuring that Reporting Financial Institutions are correctly conducting the due diligence and reporting procedures and are therefore reporting complete and accurate information. This includes ensuring effectiveness in a domestic context, such as through having an effective administrative compliance framework and related procedures (SR 1.5), and collaborating with exchange partners to ensure effectiveness (SR 1.6). The Cayman Islands is encouraged to continue its implementation process to ensure its ongoing effectiveness.
SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account. This includes having in place:
an effective administrative compliance framework to ensure the effective implementation of, and compliance with, the CRS. This framework should:
be based on a strategy that facilitates compliance by Reporting Financial Institutions and which is informed by a risk assessment in respect of the effective implementation of the CRS that takes into account relevant information sources (including third party sources);
include procedures to ensure that Financial Institutions correctly apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions;
include procedures to periodically verify Reporting Financial Institutions’ compliance, conducted by authorities that have adequate powers with respect to the reviewed Reporting Financial Institutions, with procedures to access the records they maintain; and
effective procedures to ensure that Financial Institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures;
effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions;
strong measures to ensure that valid self-certifications are always obtained for New Accounts;
effective procedures to ensure that each, or each type of, jurisdiction-specific Non-Reporting Financial Institution and Excluded Account continue to present a low risk of being used to evade tax; and
effective procedures to follow up with a Reporting Financial Institution when undocumented accounts are reported in order to establish the reasons why such information is being reported.
In order to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, the Cayman Islands implemented all of the requirements in accordance with expectations. The key findings were as follows:
The Cayman Islands has implemented an overarching strategy to ensure compliance with the AEOI Standard developed after conducting a risk assessment that took into account a range of relevant information sources, including the nature of its financial services industry and information from the Monetary Authority. The Cayman Islands has established a risk register which identifies strategic, operational and case-based risks. The Cayman Islands intends to keep its compliance strategy and risk assessment under review to ensure its effectiveness on an ongoing basis.
The Cayman Islands has worked effectively to understand its population of Financial Institutions, including relevant non-regulated entities, requiring all Reporting Financial Institutions to register and file reports including nil reporting. It has processes to utilise various other relevant information sources, such as the Foreign Financial Institution list for FATCA purposes, Economic Substance notifications and regulatory lists in the jurisdiction. The Cayman Islands is taking action to ensure that Reporting Financial Institutions are classifying themselves correctly under its domestic rules and reporting information as required. The Cayman Islands intends to keep its understanding of its Financial Institution population up to date on a routine basis.
The institution responsible for implementing the Cayman Islands’ compliance strategy appears to have the necessary powers and resources available to discharge its functions. With respect to resourcing, DITC is comprised of a team of 18 full time persons working on international tax cooperation, of whom proportionally around 7 full time equivalent staff have been working on compliance activities in support of the AEOI Standard. All have access to the IT systems and tools to support these activities. Overall, they appear to have an effective operational plan to verify compliance with the requirements, incorporating appropriate compliance activities.
The Cayman Islands requires all Reporting Financial Institutions to complete and file a Compliance Form each year, which collects certain information used for risk analysis including information on the collection and reliance upon self-certifications. Procedures have been developed to follow up on identified risks, and the Cayman Islands has carried out direct verification activities to confirm the collection and completeness of self-certifications and to verify compliance with other due diligence requirements.
The Cayman Islands uses access powers to obtain information from Reporting Financial Institutions, in particular obtaining the policies, procedures and self-certifications templates used by these entities in carrying out their obligations. The Cayman Islands is also routinely using its formal powers to access records for the purposes of verifying the due diligence carried out on sampled accounts. It has prepared internal guidelines for the application of sanctions, published information to inform Financial Institutions of its enforcement plans and procedures and is carrying out these procedures when non-compliance has been identified.
It appears that the Cayman Islands is ready to take effective action to address circumvention of the requirements if such circumvention is detected. The Cayman Islands has followed up on undocumented accounts and has taken action to ensure these are categorised correctly and to establish the reasons for their occurrence. The Cayman Islands will also keep its jurisdiction-specific category of Excluded Account under review to ensure it continues to pose a low risk of being used for tax evasion purposes.
It is noted that the Cayman Islands does not have a jurisdiction-specific list of Non-Reporting Financial Institutions for ongoing monitoring.
Table 3 provides a summary of the specific activities undertaken, or that are planned to be undertaken, in relation to each of the key parts of the framework described above.
With respect to the Financial Account information collected and sent by the Cayman Islands, the presence of the key data point of the Tax Identification Numbers appeared to be in line with most other jurisdictions, as did the level of undocumented accounts.
While the collection and reporting of dates of birth is generally higher across jurisdictions, the Cayman Islands nevertheless reported a much lower rate of collection of dates of birth when compared to other jurisdictions. This is a key data point for exchange partners to effectively utilise the information. Follow-up discussions confirmed that the Cayman Islands is aware of this issue and is taking steps to address it.
Feedback from the Cayman Island’s exchange partners indicated that, when seeking to match information with their taxpayer database, a high proportion of partners achieved a relatively lower level of success when compared to what they generally experience in relation to the information received from all of their exchange partners. In particular, five exchange partners highlighted issues with respect to the information received, such as individuals reported without a date of birth, missing addresses or invalid Tax Identification Numbers. Follow-up discussions confirmed that the Cayman Islands is aware of these issues, they have identified what they consider to be the primary cause and they are taking steps to remedy the situation.
Based on these findings it was concluded that, overall, the Cayman Islands is meeting expectations in ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures. It was noted that there is room for improvement with respect to addressing the issues raised by exchange partners. The Cayman Islands is therefore encouraged to continue its implementation process accordingly, including by addressing the recommendation made.
The Cayman Islands should continue to address the issues raised by its exchange partners.
SR 1.6 Jurisdictions should collaborate on compliance and enforcement. This requires jurisdictions to:
use all appropriate measures available under the jurisdiction’s domestic law to address errors or non-compliance notified to the jurisdiction by an exchange partner; and
have in place effective procedures to notify an exchange partner of errors that may have led to incomplete or incorrect information reporting or non-compliance with the due diligence or reporting procedures by a Reporting Financial Institution in the jurisdiction of the exchange partner.
It should be noted that, as the Cayman Islands exchanges information on a non-reciprocal basis and does not therefore receive information, it is not required to have in place procedures to notify its exchange partners. SR 1.6 b) has therefore not been assessed in this case.
In order to collaborate on compliance and enforcement, it appears that the Cayman Islands implemented all of the requirements in relation to issues notified to them (i.e. under Section 4 of the MCAA or equivalent) in accordance with expectations. While no such notifications have yet been received, the Cayman Islands has the necessary systems and procedures to process them as required.
Based on these findings it was concluded that the Cayman Islands is fully meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures. The Cayman Islands is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
CR2 Effectiveness in practice: Jurisdictions should exchange the information effectively in practice, in a timely manner, including by sorting, preparing, validating and transmitting it in accordance with the AEOI Standard.
The Cayman Islands’ implementation of the AEOI Standard is on track with respect to exchanging the information effectively in practice, including in relation to sorting, preparing and validating the information (SR 2.4), correctly transmitting the information in a timely manner (SRs 2.5 – 2.7), and providing corrections, amendments or additions to the information (SR 2.9). The requirements in relation to the receipt of the information (SR 2.8) have not been assessed as the Cayman Islands exchanges information non-reciprocally, so does not receive information. The Cayman Islands is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).
Feedback from the Cayman Islands exchange partners did not raise any specific concerns with respect to their ability to process the information received from the Cayman Islands and therefore with respect to the Cayman Islands implementation of these requirements. More generally, one of the Cayman Islands’ exchange partners reported rejecting more than 25% of the files received, due to the technical requirements not being met. This is broadly in line with the general experience of other jurisdictions and has improved over time. It was noted that the Cayman Islands has already successfully addressed the issue.
Based on these findings it was concluded that the Cayman Islands is fully meeting expectations in relation to sorting, preparing and validating the information. The Cayman Islands is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.5 Jurisdictions should agree and use, with each exchange partner, transmission methods that meet appropriate minimum standards to ensure the confidentiality and integrity of the data throughout the transmission, including its encryption to a minimum secure standard.
In order to put in place an agreed transmission method that meets appropriate minimum standards in confidentiality, integrity of the data and encryption for use with each of its exchange partners, the Cayman Islands linked to the CTS.
Based on these findings it was concluded that the Cayman Islands is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. The Cayman Islands is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.6 Jurisdictions should carry out all exchanges annually within nine months of the end of the calendar year to which the information relates.
Feedback from the Cayman Islands exchange partners did not raise any concerns with respect to the timeliness of the exchanges by the Cayman Islands and therefore with respect to the Cayman Islands implementation of this requirement.
Based on these findings it was concluded that the Cayman Islands is fully meeting expectations in relation exchanging information in a timely manner. The Cayman Islands is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.7 Jurisdictions should send the information in accordance with the agreed transmission methods and encryption standards.
Feedback from the Cayman Islands’ exchange partners did not raise any concerns with respect to the Cayman Islands’ use of the agreed transmission methods and therefore with the Cayman Islands’ implementation of this requirement.
Based on these findings it was concluded that the Cayman Islands is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. The Cayman Islands is therefore encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.8 Jurisdictions should have the systems in place to receive information and, once it has been received, should send a status message to the sending jurisdictions in accordance with the CRS Status Message XML Schema and the related User Guide.
It should be noted that, as the Cayman Islands exchanges information on a non-reciprocal basis and does not receive information, it is not required to have in place systems to receive the information and provide status messages. SR 2.8 has therefore not been assessed in this case.
SR 2.9 Jurisdictions should respond to a notification from an exchange partner as referred to in Section 4 of the Model CAA (which may include Status Messages) in accordance with the timelines set out in the Commentary to Section 4 of the Model CAA. In all other cases, jurisdictions should send corrected, amended or additional information received from a Reporting Financial Institution as soon as possible after it has been received.
The Cayman Islands appears ready to respond to notifications and to provide corrected, amended or additional information in a timely manner and no such concerns were raised by the Cayman Islands’ exchange partners and therefore with respect to the Cayman Islands’ implementation of these requirements.
Based on these findings it was concluded that the Cayman Islands appears to be meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended or additional information. The Cayman Islands is encouraged to continue to ensure the ongoing effectiveness of its implementation.