In July 2022, the Cayman Islands Tax Information Authority (TIA) issued Version 1.2 of its CRS Enforcement Guidelines which replaces the previous Versions 1.0 and 1.1. The TIA stated its compliance monitoring and enforcement function objective is to ensure FIs comply with their CRS obligations so that complete and accurate information is collected, reported and ultimately exchanged with relevant authorities of Reportable Jurisdictions.
The Guidelines document covers the following seven topics and includes notice templates:
CRS Administrative Penalties
Investigatory Functions of the TIA
Breach Notice
Contesting a Proposed Penalty or Its Amount
Penalty Notice
Appeals Process
Payment of Penalty & Interest
Breach Notice
The ITA may reach out to the FI in the TIA’s investigatory capacity seeking information and in subsequent stages of the process to issue a Breach Notice, Primary Penalty Notice or Continuing Penalty Notice.
The Breach Notice will provide the facts and circumstances that led the TIA to impose a primary penalty. The penalty stated in the Breach Notice is considered a proposed amount and is not a final penalty notice. The recipient of the notice has the ability to respond to the ITA to defend itself and/or request a lower penalty.
The TIA will notify the PPoC of an FI via email using the email address registered on the DITC Portal. If the PPoC is not available, the notice will be sent to the Authorised Person (“AP”). If the TIA is unable to contact the PPoC or AP, the TIA will send the notice to the FI’s Registered Office address.
If the FI does not respond to the TIA by the deadline stated on the notice, the FI will have violated the CRS regulations and it is likely the TIA will impose an administrative penalty against the FI. To avoid delay in receiving a notice, it is important to keep the contact information for the PPoC, the AP, and the FI current in the DITC portal. It is also important to include in your policies and procedures an efficient reaction plan to ensure timely response to a notice.
Primary Penalty Notice
The Primary Penalty Notice will be dated and include the following information:
Party’s name;
TIA has imposed a penalty and the amount of the penalty;
TIA’s reasons for imposing a primary penalty;
Penalty will become a debt owing to the Crown after 30 days;
Party may appeal to a court against the decision to impose a penalty, the proposed amount, or both within 60 days of receipt of the Penalty Notice; and
Same “Compliance Reference” provided in the Breach Notice.
Continuing Penalty Notice
A party may receive a Continuing Penalty Notice from the TIA in an amount of up to $100 for each day the violation continues in the following circumstances:
A Primary Penalty has been imposed and has not been stayed;
The violation has not been remedied; and
The party is capable of remedying the violation.
Penalty Amounts
The TIA may impose administrative penalties of:
Up to KYD$50,000 for offences by a body corporate or individuals forming part of an unincorporated Cayman FI;
Up to KYD$20,000 for offences by other offenders against Part 3 of the CRS Regulations;
KYD$100 for each day the contravention continues.
The below chart highlights certain penalties. The penalty ultimately issued by the TIA may be greater or lesser than the amounts listed below.
Penalty Considerations
The TIA outlined factors it will consider in making a penalty decision. The below factors are in the order of importance in the TIA’s determination:
The need to ensure strict compliance with, and to penalize and deter violation of, the Cayman Islands CRS Regulations;
The nature, seriousness and consequences of the violation;
The apparent degree of the party’s inadvertence, intent or negligence in committing the violation;
The party’s conduct after becoming aware of the violation, including e.g.,
whether and how quickly the party brought the violation to the ITA’s attention; and
the party’s efforts to remedy the violation or prevent its recurrence; and
The party’s history of compliance with the CRS, in the Cayman Islands or elsewhere, of which the TIA is aware.
Fighting the Penalty
The party may respond in writing to the TIA regarding the proposed action, the proposed penalty amount, or both. The guidelines describe the opportunity for an FI to demonstrate a reasonable excuse as a defense to a violation. However, the TIA makes clear that neither insufficiency of funds nor reliance on an appointed agent constitutes a reasonable excuse.
If the TIA seeks to apply a penalty against an FI’s director, the director may defend herself by proving she exercised reasonable diligence to prevent the violation.
Timeliness is key in responding to the TIA. The TIA will only consider responses submitted via email before the deadline stated on the Notice. It is within the TIA’s discretion to withdraw the penalty or adjust the penalty amount downwards so it is imperative that internal processes are in place.
Similarly, timelines is key in appealing the TIA’s decision to a court. An appeal may be made only within 60 days after the party received the Penalty Notice unless the court allows a later period.
For assistance, please contact me via my contact page or at elizabeth@elizabethmcmorrowlaw.com.