CAYMAN ISLANDS : DOUBLE TAX TREATIES

The Monetary Authority has bilateral information exchange agreements with 14 overseas regulatory authorities, and a multilateral MoU with eight authorities in the Caribbean.

In May, 2006, the Cayman Islands Monetary Authority (CIMA) and the Office of the Superintendent of Financial Institutions Canada (OSFI) signed a memorandum of understanding that provides a framework for cross border cooperation between the two countries.

The MoU establishes a protocol for the sharing of information and protection of information shared, cooperation regarding on-site inspections carried out by one regulator on supervised financial institutions in the other jurisdiction, and ongoing coordination.

OSFI is responsible for regulating and supervising all federally chartered, licensed or registered banks and insurance, trust and loan companies, as well as cooperative credit associations and fraternal benefit societies in Canada.

CIMA General Counsel, Mr Langston Sibblies, noted that the agreement was important since OSFI, as the federal regulator, has jurisdiction in all of Canada's provinces.

"The MoU will allow us to develop cooperative relationships in a structured and clear way and will further enhance supervision of Canadian entities operating here, particularly in the banking sector," he observed.

The MoU is subject to the domestic laws of both jurisdictions, as with other memoranda.

Mr Sibblies continued: "One area of concern for OSFI in negotiating the MoU was the preservation of confidentiality of information that would be provided under the agreement and the assurance that information received would be used for lawful supervisory purposes.

"On examination of our respective legislation we were both satisfied that our laws governing information exchange and deterring financial crime are equivalent. This facilitated the establishment of the MoU."

CIMA's Managing Director, Mrs. Cindy Scotland, said this agreement underscored the importance Cayman, as a major financial centre, placed on international cooperation.

"The MoU with OSFI again demonstrates our commitment to assist overseas regulators in a manner consistent with Cayman's laws as we pursue our mission of creating a competitive and internationally recognised financial services industry," she stated.

On February 21, 2008, a memorandum of understanding for the exchange of information and investigative assistance between CIMA and the FSA, the UK's national regulator of financial services and markets, was signed. The agreement provides a formal basis for cooperation between the two authorities.

The MoU is similar to the other agreements in place between CIMA and overseas financial regulators. It outlines the types of assistance that can be requested and given by CIMA and the FSA.

This includes: providing, confirming or verifying information; obtaining specified information and documents from other parties; discussing issues of mutual interest; questioning or taking testimony of persons designated by the requesting authority; arranging and/or conducting inspections of financial services providers; and permitting representatives of the requesting authority to participate in enquiries by or on behalf of the requested authority.

The MoU also outlines the procedure each regulator will use for making requests, and explains how requests will be assessed to determine if the required assistance can be given.

The agreement has provisions for the treatment of confidential information that each authority may receive under the MoU. Such non-public information can only be disclosed, the MoU states, "in accordance with disclosures permitted under its applicable laws, regulations and requirements".

According to CIMA's Managing Director, Cindy Scotland, the agreement represents a significant development for the Cayman financial services industry.

She announced following the signing of the agreement that: "The FSA is an important regulator of a major G7 country. We see this MoU as reinforcing our strong international cooperation regime and further demonstrating our commitment in this area."

In March 2009, the Cayman Islands and the seven Nordic countries, comprising of Denmark, Faroe Islands, Finland, Greenland, Iceland, Norway and Sweden, concluded technical negotiations on a series of bilateral agreements, including tax information agreements, at a meeting between the respective delegations held in Copenhagen on March 5-6.

These were second round negotiations, the first round having taken place in the Cayman Islands on April 17-18, 2008.

“We are very pleased to see these agreements come to fruition with our Nordic Group partners. It is proof of what can be achieved when parties approach negotiations in a fair manner, and we are keen to continue this trend, involving, on our part, effective arrangements for the provision of information on tax matters,” said Cayman Minister for International Financial Services Policy, Alden McLaughlin, adding: “This is further evidence that the Cayman Islands does not trade on secrecy or illicit tax activity.”

The seven tax information agreements were signed in Stockholm in April 2009, after all countries have completed their individual administrative protocols.

The collateral commercial agreements, also signed in Copenhagen, were due to be signed at the Norwegian Embassy in Paris in mid-June.

The Cayman Islands Monetary Authority has also entered into MoUs with regulatory bodies in Brazil, Malta, Argentina, the State of Washington, Jersey, Isle of Man, Bermuda, Jamaica and Panama.

The Cayman/US Tax Information Exchange Agreement

The agreement specifies that the Cayman Islands will share tax information to help the US government trace financial criminals. Former IRS Commissioner Donald Alexander told the US media that the treaty will enable the IRS to overcome the secrecy surrounding the accounts of financial institutions in the Cayman Islands to allow it to launch audits for tax evasion and money-laundering.

"Right now," said Mr Alexander, "nothing is a fair description of the cooperation the United States is getting. It's a hotbed of tax evasion. This is a good step in the right direction."

The agreement covers information relating to "the administration and enforcement of the domestic laws of the parties concerning the taxes and the tax matters covered by this Agreement, including information that may be relevant to the determination, assessment, verification, enforcement or collection of tax claims with respect to persons subject to such taxes, or to the investigation or prosecution of criminal tax evasion in relation to such persons".

Information has to be provided by the Cayman government without regard to whether the person to whom the information relates is, or whether the information is held by, a resident or national of a party; and provided that the information is present within the territory, or in the possession or control of a person subject to the jurisdiction, of the requested party.

The taxes covered by the Agreement are federal income taxes, "but the types of tax covered may be extended by agreement between the parties in the form of an exchange of letters". That appears to mean that the Cayman government can agree with the US to extend coverage to other taxes.

The agreement covers "criminal tax evasion", which means: "wilfully, with dishonest intent to defraud the public revenue, evading or attempting to evade any tax liability where an affirmative act constituting an evasion or attempted evasion has occurred. The tax liability must be of a significant or substantial amount, either as an absolute amount or in relation to an annual tax liability, and the conduct involved must constitute a systematic effort or pattern of activity designed or tending to conceal pertinent facts from or provide inaccurate facts to the tax authorities of either party."

Information must be provided even if the alleged criminal behaviour was not criminal in the Cayman Islands. The signatories agree to provide themselves with the authority to obtain information held by banks, other financial institutions, and any person, including nominees and trustees, acting in an agency or fiduciary capacity; information regarding the beneficial ownership of companies, partnerships and other persons, including in the case of collective investment funds, information on shares, units and other interests; and in the case of trusts, information on settlors, trustees and beneficiaries.

For the US to make a request under the agreement, it must provide:

• the identity of the taxpayer under examination or investigation;
• the nature of the information requested;
• the tax purpose for which the information is sought;
• reasonable grounds for believing that the information requested is present in the territory of the requested party or is in the possession or control of a person subject to the jurisdiction of the requested party;
• to the extent known, the name and address of any person believed to be in possession or control of the information requested;
• a declaration that the request conforms to the law and administrative practice of the requesting party and would be obtainable by the requesting party under its laws in similar circumstances, both for its own tax purposes and in response to a valid request from the requested party under the Agreement.

Information need not be provided if it is subject to legal privilege, or if it would not have been obtainable by the US under its own laws, domestically.

The Agreement took effect from January 1, 2004.

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Cayman Islands Other Tax Information Exchange Agreements

In March 2009, the Cayman Islands government announced that it has put in place arrangements that provide access to comprehensive tax information assistance with twenty countries, including the majority of Cayman’s major trading partners.

Ireland, Japan, the Netherlands and South Africa joined eight other countries afforded tax information assistance under a unilateral mechanism, which does not require a bilateral treaty.

The Cayman Islands also had eight bilateral tax information agreements at this time, which included recent agreements with the Nordic countries as well as an existing agreement with the US signed in 2001.

The unilateral mechanism, introduced in 2008, provides an additional mode for the Cayman Islands to deliver on its commitment to transparency and exchange of information in tax matters.

“The Cayman Islands took the proactive step of introducing the unilateral mechanism for the provision of information in tax matters, as a complement to our bilateral negotiation programme,” said Cayman Islands leader of government business, Kurt Tibbetts, adding: “We recognised the need to increase the pace at which we could enter into tax information arrangements, while offering a phased approach to our negotiating partners under our bilateral programme in appropriate circumstances. We look forward to continuing this progressive approach.”

At this stage, the Cayman Islands’ tax information exchange network covered four of the seven G-7 states and seventeen of the 30 OECD member states.

In June 2009, a double tax agreement with the UK facilitating tax information exchange along OECD standards was signed by Stephen Timms, then Financial Secretary to the Treasury and McKeeva Bush, Leader of Government Business in the Cayman Islands.

HMRC Permanent Secretary for Tax in the UK, Dave Hartnett, commented:

“The information exchange provisions in this arrangement meet OECD standards of tax transparency and the agreement is especially welcome for that."

"Information exchange enables us to confront effectively tax avoidance and money laundering whilst ensuring that we all make the right contribution to our public services.”

Later the same month, the Cayman Islands’ government signed a Tax Information Exchange Agreement with Ireland at a ceremony held at the British Embassy in Berlin.

Commenting at the signing, Bush said that the agreement marked "another important step towards our ongoing commitment to international cooperation and OECD standards for transparency and exchange of information on tax matters. This signing will commemorate the beginning of what I am sure will be a highly productive and mutually rewarding relationship between the Cayman Islands and Ireland.”

Technical negotiating teams from the Cayman Islands and the Netherlands finalised the terms of an agreement and protocol for the exchange of information with respect to tax matters after two days of meetings in George Town on June 24- and 25, 2009. The text was initialled by both parties.

The draft agreement covers many of the standard provisions in the Organisation for Economic Cooperation and Development (OECD) model agreement for the exchange of information on tax matters. The agreement was signed later that month.

The Cayman Islands landmark 12th tax information exchange agreement was signed with New Zealand in August 2009, moving the jurisdiction onto the “white list” of countries that have “substantially implemented” the OECD’s internationally agreed tax standard.

The Cayman Islands’ Leader of Government Business/Premier Designate, McKeeva Bush, said: “For over four decades the Cayman Islands has steadily earned its place as a world-class international financial services center. The Cayman Islands Government sees the OECD’s recognition as a natural outcome of the country’s substantial commitment to uphold an equally world-class international cooperation regime in the exchange of tax information."

"The Cayman Islands Government is looking forward,” Bush continued, “to working in partnership with competent authorities in implementing agreements it has signed, concluding additional agreements with Cayman’s important trading partners in financial services, and continuing its active role in the OECD Global Forum, which it committed to in 2000."

Jeffrey Owens, Director of the OECD’s Centre for Tax Policy and Administration, welcomed the signing, and said that the OECD looked forward to working further with the Cayman Islands as it extends its network of agreements and works to implement them swiftly and effectively.

The TIEA also includes an agreement for the allocation of taxing rights with respect to certain income of individuals (including pensions), and provisions to establish a mutual agreement procedure in respect of transfer pricing adjustments. It was earmarked to enter into force after notification by both parties, after which it will have effect for taxable periods beginning on or after the following January 1.

Another tax information exchange agreement, with France, was signed on October 5, 2009.

Bush said: “We hope that this agreement will act as a catalyst for French companies looking to diversify into new markets. Whilst providing the assurance of mutual cooperation, market access and smooth capital flows, we are hoping it will contribute to growth in international business and to stimulating our local economy.”

Later that month, the Cayman Islands signed a TIEA with the Netherlands Antilles, whilst attending the Caribbean Financial Action Task Force (CFATF) plenary, held in Curacao.

The agreement, the Caymans' fourteenth, was signed on behalf of the Cayman Islands by the Cayman Attorney General, Samuel Bulgin.

In March 2010, the Cayman Islands government committed to the signing of a further 16 TIEAs with jurisdictions of economic significance, in addition to the 14 TIEAs it had already concluded.

Cayman Island Premier, McKeeva Bush, and Sergio Vasques, the Portuguese Secretary of State of Tax Affairs, signed an agreement for the exchange of tax information in a ceremony on May 13.

Said Bush: “Some of Portugal’s major financial institutions which have a presence in the Cayman Islands and are licensed by our regulator, the Cayman Islands Monetary Authority. We see this as a sign of confidence in our financial services industry and we hope that this agreement may help expand opportunities for more commercial activities between our two countries.”

Also in May 2010, the governments of Japan and the Cayman Islands initialled a comprehensive double tax agreement with provisions to allow for the exchange of tax information in civil and criminal tax matters, in line with the jurisdiction’s commitment to improve transparency with third nations.

Elements in the agreement for the avoidance of double taxation will assign the taxing rights of the respective countries with regard to certain income of individuals such as pensions. It is expected that under the agreement economic ties between the two countries will be bolstered.

Welcoming the agreement on behalf of the Cayman Islands, Bush stated: “The Cayman Islands is pleased to have reached this agreement with our Japanese counterparts, particularly given the exceptional commercial relationships between our financial services sectors. The swift and efficient negotiation is a testament of both countries’ commitment to uphold and effectively implement international standards in the exchange of information on tax matters.”

The agreement, which at this point remained unsigned, will enter into force after the respective countries have undertaken their individual ratification processes.

May also saw the Cayman Islands and Germany entering into a TIEA following a signing ceremony held on the 27th.

The agreement was signed by the Cayman Islands’ Premier, McKeeva Bush and by Germany’s Ambassador to Jamaica, Jurgen Engel.

The agreement will allow for the exchange of tax information between the two countries’ tax authorities upon request, where there is evidence of the perpetration of fiscal crime, or in civil tax matters.

Speaking following the signing, Bush stated: “We have had a bilateral agreement with Germany in effect since 2005 as part of our implementation of the European Union Savings Directive, under which we report interest income earned by German citizens in Cayman Islands accounts. “

“Today’s comprehensive tax information sharing arrangements reflect our countries’ commitment to upholding and implementing international standards in an important area of the global financial services sector.”

“We look forward to many more years of successful work with our German counterparts."

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