Even though the European Union called it a haven where wealthy individuals and large companies could store their funds with little or no tax levied against them, Grand Cayman is trying to show the rest of the world that it is financially transparent.
The small island country is readying itself for the effort it will take to comply with the Organization for Economic Co-operation and Development's Common Reporting Standard, an exchange of financial information meant to reduce worldwide tax evasion.
The Grand Cayman government is an "early adopter" of the standard (more formally referred to as the Standard for Automatic Exchange of Financial Account Information in Tax Matters) and is committed to undertaking the first information exchanges under the CRS by 2017.
"Regulations to align the country's financial practices with the CRS will be in place later this year."
Financial institutions alerted
According to CNSBusiness, the Grand Cayman government has notified financial institutions that regulations to align the country's financial practices with the CRS will be in place later this year. The government is already telling the country's financial institutions to keep all the information and documentation of new clients up to date in anticipation of the new regulations.
The standard calls on governments to obtain detailed account information from their financial institutions and exchange that information automatically with other jurisdictions annually, according to a press release from the OECD that accompanied the release of the full standard last year.
"The Standard provides for annual automatic exchange between governments of financial account information, including balances, interest, dividends, and sales proceeds from financial assets, reported to governments by financial institutions and covering accounts held by individuals and entities, including trusts and foundations," the press release stated. "The new consolidated version includes commentary and guidance for implementation by governments and financial institutions, detailed model agreements, as well as standards for harmonized technical and information technology solutions, notably a standard format and requirements for secure transmission of data."
Blacklisted by the EU
The added transparency comes after the country's officials felt the sting of a European Union rebuke last month. In June, the EU put out a blacklist of 30 countries it considered tax havens for multinational corporations looking to avoid paying their full share of taxes to the 28-country bloc. And Grand Cayman was on it.
"Corporate taxation in the EU needs radical reform," said Pierre Moscovici, EU's economic affairs commissioner, in a statement upon releasing the EU's infamous blacklist. "Member states need to pull together and everyone must pay their fair share."
Grand Cayman's financial services minister, Wayne Panton, told CNSBusiness at the time that the blacklisting came at the hands of European countries that were not Cayman trade partners, and that those countries may not have been aware of the steps the government had taken to freely exchange taxing information with EU countries.
"It is unfortunate that the EU blacklist unfairly downplays the significant strides made by Cayman, as well as the significant global accomplishments in the area of transparency," Panton said.
Except for Bulgaria, Grand Cayman has tax exchange policies in place that blacklisted Grand Cayman. For a nation to have appeared on the EU's blacklist, it had to have been named by at least 10 member countries of the EU. Grand Cayman was listed by 11 such countries.
Cayman Finance, the private sector organization that represents the country's finance industry, expressed disappointment in the blacklisting.
"It is not clear what standards have been used by these 11 countries to come to such a conclusion, in particular when the Cayman Islands has exchange of information mechanisms in place with all but one of these countries," the organization stated.
"With CRS, that similar procedure would take place for every country committed to the standard, which increases financial institutions' workload significantly."
Preparing for the additional work
Official CRS reporting doesn't begin until 2017. However, Grand Cayman's government is telling financial institution administrators and managers to get ready now because early adoption countries will begin reporting in 2016. Each institution could have numerous accounts for each jurisdiction (country) that has pledged participation in the CRS.
Kevin Phillip, executive director and business unit leader of the DMS International Tax Compliance Group, told CNSBusiness that because so many jurisdictions are taking part on the CRS, "that means increased compliance and increased work for all fund administrators, service providers and even the Tax Information Authority (TIA). Also given this increase, we expect that each fund may have multiple reportable accounts."
Of Grand Cayman's participation in the CRS, Panton said to CNSBusiness, ""The CRS is an important progression in ensuring international tax compliance, across country borders. By implementing it via the enactment of local regulations, Cayman continues to show our full participation and strength, as a member of the growing network of countries worldwide that engage in international tax cooperation."
The U.S.' Foreign Account Tax Compliance Act is similar to the CRS in that financial institutions divulge certain information about their American account holders to their respective governments, who then share the information with the IRS. With CRS, that similar procedure would take place for every country committed to the standard, which increases financial institutions' workload significantly.
