Economic Substance and Automatic Exchange of Tax Information

Published: 17 Mar 2020

Economic Substance: International Tax Co-Operation (Economic Substance) Law, (2020 Revision)

The new year ushered in a 2020 revision of the International Tax Co-operation (Economic Substance) Law (ES Law).

The ES Law is supplemented by the Cayman Islands guidance for economic substance for geographically mobile activities (ES Guidance Notes), version 2.0 of which was published on 30 April 2019. We had anticipated the final publication of version 3.0 of the ES Guidance Notes during 2019, following the release of a consultation draft in late November of that year. No such publication occurred, however, and we now expect that updated ES Guidance Notes will not be released until mid-2020 at the earliest.

We strongly recommend that anyone who has not yet addressed the implications of the ES Law on their Cayman entities do so as a matter of urgency. Appleby would be pleased to assist in this endeavour. Please contact a member of our Regulatory Team or your usual Appleby contact.

Additionally, we encourage those who have already undertaken the classification exercise to remain mindful of the 2019 notification and reporting requirements and the anticipated release of updated ES Guidance Notes during 2020.

ES NOTIFICATION AND REPORTING

Operators of Cayman Islands exempted companies, LLCs and LLPs and foreign companies registered under the Companies Law are reminded that each such entity is required to file a 2019 notification form under the ES Law (ES Notification) by no later than 31 March 2020.

The ES Notification is filed by the entity’s registered office via the General Registry system of the Registrar of Companies of the Cayman Islands. The notification form is separate from the General Registry’s annual return for companies but, in terms of timing, the completion and filing of the ES Notification is a prerequisite to filing the annual return. Entities that fail to file their ES Notification and/or annual return by the deadline noted above will not be in good standing with the Registrar of Companies.

AUTOMATIC EXCHANGE OF TAX INFORMATION (AEOI)

The Cayman Islands Department of International Tax Cooperation (DITC) is in the process of building a new portal for CRS and FATCA registrations and reporting (DITC Portal). The DITC Portal is expected to be available 1 June 2020. All user accounts from the former AEOI Portal will be migrated to the new DITC Portal along with their assigned Financial Institution (FI) numbers.

The DITC will not be accepting any new FI registrations until the new DITC Portal is launched in June 2020.

Under the Tax Information Authority (International Tax Compliance) (United States of America) (Amendment) Regulations, 2020 and Tax Information Authority (International Tax Compliance) (Common Reporting Standard) (Amendment) Regulations, 2020 (together, the New AEOI Regulations), the annual reporting deadline for FATCA and CRS has changed from 31 May to 31 July (of the year following the relevant reporting period). In recognition of the delayed launch of the new DITC Portal, the deadline for 2019 FATCA and CRS reporting (only) will be 18 September 2020.

The New AEOI Regulations also remove the requirements for an Authorising Person and a Principal Point of Contact to be an individual. These roles may now be filled by either an individual or an entity.

Several new Reportable Jurisdictions have been added for CRS purposes. Albania, Ecuador, Kazakhstan, Maldives, Nigeria, Oman, and Peru will be Reportable Jurisdictions for reports due in 2020 and onwards.

Country-by-country (CbC) reporting for multinational enterprises (MNEs) will also migrate to the new DITC Portal. On 2 March 2020, the DITC announced that the CbC reporting portal is scheduled to go offline on 25 March 2020 to facilitate the migration over to the new DITC Portal. It is anticipated that the CbC reporting will be available in the fourth quarter of 2020. The DITC also announced that MNE Groups with a fiscal year starting in the range 1 July 2018 – 31 December 2018 will be required to file their CbC report no later than 31 December 2020 and that CbC reports made by 31 December 2020 will not result in compliance measures being taken for late filing.

IMPORTANT DATES

31 March 2020: Deadline for 2019 ES Notification filings
June 2020: Launch of new DITC Portal for CRS and FATCA registrations and reporting
31 July: New deadline for FATCA and CRS annual reporting
18 September 2020: The deadline for 2019 FATCA and CRS reporting only given the new DITC Portal will only be fully functional beginning in June 2020

Economic Substance Online Tool

Appleby has an online Economic Substance Entity Classification Questionnaire which offers guidance through the economic substance regime of the Cayman Islands (as well as the regimes of Bermuda, the BVI, Guernsey, the Isle of Man and Jersey). It was developed by our legal and regulatory experts and is available online free of charge. If an entity is in scope of a jurisdiction’s economic substance requirements, the Questionnaire will provide a summary of steps required to meet those requirements.

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