Cayman Islands Directors Vote For FATCA IGA Model 1
Members of the Cayman Islands Directors Association (CIDA) have been surveyed on the reporting methods that could be used under the Foreign Account Tax Compliance Act (FATCA) and have voted in favor of Intergovernmental Agreement Model 1 (IGA Model 1).
The Cayman Islands has been offered two reporting methods, IGA Model 1 and IGA Model 2. Both require the nation’s banks, or "foreign financial institutions" (FFIs) to annually report information regarding accounts and substantial non-financial entities owned by US citizens. The first model would see FFIs report this information to the Cayman Island Government, which will then be responsible for communicating it to the US Internal Revenue Service (IRS). The second, IGA Model 2, would require the FFIs to relay the information directly to the IRS.
The CIDA members were asked for their views on the issue in response to an appeal for CIDA’s position from the Cayman Islands Government’s FATCA task force. CIDA President, Paul Harris, explained that many FFIs viewed Model 1 as more desirable as offshore users and fund managers would be more inclined to use FFIs that do not report directly to the IRS. There are even fears that some offshore users may relocate to other jurisdictions that follow the Model 1 approach, if Cayman decides to go with Model 2.
The FFIs that will be required to relay the account information to their governments or directly to the IRS, depending on which reporting model they adopt, will include depository institutions, investment entities and some holding companies and treasury centers. The 200 members of CIDA surveyed in this report consisted of directors of companies registered in the territory, some of which would come under the FFI banner for FATCA purposes.
IGA Model 1 was developed as a solution to initial fears voiced by a number of FFIs claiming that the requirements would cause them to directly contravene their own countries’ privacy laws. The involvement of governments as "go-betweens" in the reporting process between banks and the IRS was the result of bilateral agreements between these governments and the US Treasury. However, only four such agreements have so far been completed and a further 50 are still being hashed out.
Recently, some countries have been asking for a reciprocal deal, between themselves and the US, which could require US banks to reveal information about foreign account holders to overseas tax authorities. China, Germany and France are at the center of this development and the pressure they are inflicting on the US could be having an effect. It is thought the US may concede to such requests in the interests of international cooperation.