In April 2021 and again on June 3, 2021, the Cayman Islands Department for International Tax Cooperation (DITC) warned financial institutions (FIs) to ensure that they have properly classified their entities under FATCA and the Common Reporting Standard (CRS).
Classification Consistency
Both FATCA and CRS have anti-avoidance / anti-circumvention rules. It is important for FIs to realize that each jurisdiction is cross checking information submitted by the FI across portals within the jurisdiction. Additionally, the jurisdiction is cross checking information submitted to it with information submitted to other jurisdictions with the IRS FFI List being a prime example. FATCA and CRS have reached the stage of maturity that FIs should be prepared for jurisdictions to become more active in enforcement. Given the DITC’s two warnings on entity classification, FIs would be irresponsible not to take these warnings as a precursor to more active DITC enforcement.
The DITC stated “each Cayman Islands company, partnership and trust, and its directors or equivalent fiduciaries, must ensure that it has been correctly classified for the purposes of the CRS and /or FATCA Regulations (‘Regulations’). . . . It is an offence under the Regulations for Financial Institutions (‘FIs’) to fail to notify the DITC of their correct classification under the Regulations. Every FI with reporting obligations must also observe all other requirements under the Regulations. The DITC will consider appropriate compliance and enforcement action where mis-classification is discovered.”
While the IRS points the finger at the Responsible Officer (“RO”) for FATCA compliance, the DITC will look to “each FI and its directors, or equivalent fiduciaries” when determining who may be liable to administrative penalties, criminal prosecution, or other sanctions in the event of non-compliance with FATCA and CRS.
No Change to Deadlines
The DITC said it is not currently planning any extensions to the reporting deadlines.
CRS Compliance Form Bulk Upload
The CRS Compliance Form is akin to the IRS FATCA Responsible Officer (RO) Certification and must be completed by Reporting FIs and Trustee Documented Trusts. There are five sections to the form:
Section 1 - Financial Institution Profile Data
Section 2 - Financial Account Data
Section 3 - AML/KYC and Accounting
Section 4 - CRS Process
Section 5 - Declaration
The DITC has published the bulk upload CSV template for the CRS Compliance Form which is a useful tool for those submitting forms for a large number of FIs. Those submitting for only a small number of FIs may prefer the smartform version.
The CSV template can be downloaded from the DITC website. While it is possible to prepare the CSV template as an Excel spreadsheet, it must be submitted to the DITC portal as a CSV file.
The DITC’s Explanatory Note and Section 5.F. of the CRS Guidelines should be reviewed prior to completing the CSV template. The DITC also suggests reviewing the smartform version to assist in understanding the CSV template. It is not yet possible to submit the CSV file to the DITC portal. The DITC will alert users on its site once this functionality is available.
CRS Compliance Form FAQs
The DITC has added a number of FAQs to its site that are specific to the CRS Compliance Form. The list of FAQs is below and can be accessed here.
How should I report a joint account?
How should I report details of a Financial Account where the Account Holder and all Controlling Persons are not Reportable Jurisdiction Persons and are in different jurisdictions, for example US and The Bahamas?
How do I report a Pre-existing Entity Account that is below the threshold for reporting?
What is the deadline to submit the CRS Compliance Form?
How do I submit the CRS Compliance Form?
Will bulk uploads of the CRS Compliance Form be allowed?
Can you submit account information in any currency?
Who can submit the CRS Compliance Form?
What is the legal basis that permits the DITC to collect this information?
Do all FIs need to complete the CRS Compliance Form?
Do Trustee Documented Trusts need to complete the CRS Compliance Form?
Is there guidance on the CRS Compliance Form?
Is the reference to non-reportable accounts in section 2 a reference to activity of any account over the year or just the year end?
How do you answer question 3.1, if the FI does not have a calendar year end?
Are you required to report undocumented accounts in Question 4.6?
Is the CRS Compliance Form to be submitted in addition to the CRS Return and CRS Filing Declaration?
Is the CRS Compliance Form required for Trusts and Private Investment Companies (PICs) classified as Investment Entity – Type B?
What happens if the FI is not able to obtain the required information to complete section 2 of the CRS Compliance Form?
What happens if the FI fails to submit the CRS Compliance Form by the deadline?
For assistance, please contact me via my contact page or at elizabeth@elizabethmcmorrowlaw.com.