CRS & FATCA Record-Keeping Clock
It is clear that you must retain records under FATCA and CRS but for how long and when does the clock start ticking? Taking the most conservative approach across FATCA, IGAs and CRS, your record-keeping policy should require a minimum of 6 years of record retention.
Generally, the FATCA regulations (which non-IGA jurisdictions must follow) require that books and records be retained as long as their contents may become material in the administration of any U.S. internal revenue law.
The records must be retained for the longer of six years or the retention period under the Foreign Financial Institution’s (FFI's) normal business procedures. An FFI may be required to extend the six-year retention period if the IRS requests such an extension prior to the expiration of the six-year period.
CRS requires that jurisdictions ensure that CRS is effectively implemented and applied by FIs, including the introduction of provisions that require reporting FIs to keep records of the steps undertaken to comply with CRS.
The CRS Commentaries further explains that such records should be available for a sufficiently long period of time and in any event for a period of not less than five years after the end of the period within which the Reporting FI must report the information required to be reported under the CRS.
Cayman Islands Record-Keeping
The practical implementation of CRS record keeping can be seen by reviewing the Cayman Islands requirements. The Cayman Islands CRS Guidance Notes requires that a Cayman Reporting FI retain for six years any book, document or other record, including any information stored by electronic means, which relates to the information required to be reported to the Tax Information Authority (TIA) under the CRS Regulations.
The Cayman Islands TIA subsequently clarified this requirement with respect to the six-year commencement date. The six-year period commences on the date when the relevant information is or should be reported to the TIA under the CRS Regulations. The TIA explained that the goal was to ensure that the Cayman record keeping period is consistent with the CRS Commentaries.
Cayman Islands FATCA Guidance Notes
Given that the Cayman Islands is a Model 1 IGA jurisdiction, it is important to look to the U.S.-Cayman Islands IGA Guidance Notes. The Cayman Islands requirements for documentary records retention under its U.S.-Cayman Islands Model 1 IGA differs from the record-keeping requirements outlined in its CRS Guidance Notes.
Under its U.S.-Cayman Islands IGA Guidance Notes, records of the documentary evidence, or a notation or record of documents reviewed and used to support an account holder’s status must be retained for six years following the end of the year in which the status was established.
Similarly, where a Relationship Manager enquiry is required, records of electronic searches, requests made and responses to Relationship Manager enquiries should be retained for six years following the end of the year in which the due diligence was undertaken. (Although the Guidance uses the word “should” retain rather than “must” retain, FI’s should treat the maintenance of Relationship Manager enquiry records no differently than the FI’s maintenance of other documentary records.)
Written Compliance Program & Training
In an effort to comply with record-keeping requirements under FATCA and CRS it is necessary to establish and maintain a comprehensive written compliance program. There must be clear lines of communication across company functions and effective training to avoid premature destruction of records.