The Cayman Islands recently approved regulations1 requiring certain multinational enterprises (MNE) to file a country-by-country report (CbC Report) with the Cayman Islands Tax Information Authority (TIA). MNE groups with annual consolidated group revenue in the preceding financial year of US$850 million or more with a Cayman entity in the group are caught. Under the Regulations, a constituent entity of an MNE group that is resident in the Cayman Islands has reporting or notification obligations (depending on whether or not it is the ultimate parent of the group) to notify certain financial information on the MNE group to the TIA. The deadlines for making notifications are 15 May or 30 September 2018, depending on how the entity is classified, as detailed below.
Cayman entities should now consider whether they are part of an MNE group and address any reporting or notification obligations.
Is your Cayman entity part of an MNE group?
The Regulations apply to:
- Any group of enterprises related through ownership or control that is required to prepare consolidated financial statements
- Where the group includes two or more enterprises which are tax resident in different jurisdictions, and
- Where the total consolidated group revenue is US$850 million or more during the relevant fiscal year.
Guidance notes are expected to be issued shortly by the TIA to help businesses that may have responsibilities to report or notify information under the Regulations, including certain template forms and clarifying when they apply to investment funds, depending on their accounting treatment and accounting consolidation rules. We will issue a further alert once the guidance notes are finalised. Given the US$850 million annual group revenue threshold and the structure of many Cayman entities, we do not expect large numbers of Cayman entities will be part of a qualifying MNE group.
What are the reporting and notification obligations for qualifying MNE Groups?
Each ultimate parent entity2 of an MNE group that is resident3 in the Cayman Islands has to file a CbC Report with the TIA in respect of the group’s reporting fiscal year. The CbC report includes aggregate financial information for each jurisdiction in which the MNE group operates and details of each constituent entity of the MNE group. In certain circumstances, where the ultimate parent entity is not required to file a CbC report in its jurisdiction of tax residence, a surrogate parent entity of the relevant group that is resident in the Cayman Islands has to file the report instead. The information filed in CbC reports will then be exchanged with tax authorities in other participating jurisdictions. The first reporting year under the Regulations is the fiscal year which began during 2016.
The TIA has confirmed that it will apply a “soft opening” of TIA notification and reporting obligations, extending the dates set out in the Regulations. This means that the notification deadlines for MNE group members with respect to their fiscal year beginning on or after 1 January 2016 are:
- 15 May 2018, if the reporting entity is resident in the Cayman Islands; or
- 30 September 2018, if the reporting entity is not resident in the Cayman Islands. This applies to MNE group members that are resident in Cayman but not the ultimate parent / surrogate parent of the group, who then have to notify the TIA of the identity and tax residence of the relevant reporting entity.
The TIA will treat MNE group members that are resident in the Cayman Islands as being in compliance with their notification obligation and will not initiate enforcement action provided the notification obligation is complied with by these deadlines.
Notification is a one-off process via the TIA’s online portal and does not have to be repeated each year. The TIA has also confirmed that a single notification should be made for all constituent entities which are resident in the Cayman Islands which are in the same MNE group, to make the process more manageable and efficient.
A reporting entity that is resident in the Cayman Islands must make its first CbC Report by 31 May 2018, which is also an extension of the original date set out in the Regulations.
Why have the Regulations been introduced?
The Cayman Islands is a party to the Multilateral Competent Authority Agreement for country by country reporting with other participating jurisdictions and has also entered into a competent authority agreement with the UK on CbC reporting. The Regulations implement the reporting and notification requirements under these agreements into Cayman law and demonstrate Cayman’s continued commitment to international best practice on exchange of information with participating tax authorities, adding to reporting and notification obligations under Cayman’s implementation of FATCA, CRS and beneficial ownership registers.
What action should Cayman entities take now?
All Cayman entities that are part of a group structure should now consider if they are part of an MNE group under the Regulations. If they are, they will need to confirm if they are a parent entity with reporting and notification obligations or another constituent entity with notification obligations to the TIA, and whether they have to comply with those obligations by 15 May 2018 or later.
Please contact your usual Harneys contact if you would like advice on whether your group is subject to the Regulations and how to comply or if you have any other questions or visit harneys.com/Cayman.
1 Tax Information Authority (International Tax Compliance) (Country by Country Reporting) Regulations, 2017 (the Regulations)
2 A constituent entity that in/directly owns a sufficient interest in one or more other constituent entities of the MNE group so that it is required to prepare consolidated financial statements under accounting principles generally applied in its jurisdiction of tax residence, and there is no other constituent entity of the MNE group that in/directly owns such an interest in the first constituent entity
3 Resident means incorporated or having a place of effective management or being subject to financial supervision in the Cayman Islands