It’s that time of year again, with the 15 September deadline for filing the annual CRS Compliance Form with the Cayman Islands’ Department for International Tax Cooperation (DITC) fast approaching. Penalties apply for financial institutions that miss the deadline, along with the risk of enforcement action for any misclassifications and non-compliance.
Fellow offshore fund centre Bermuda has introduced a similar requirement. Reporting financial institutions and Trustee-Documented Trusts (“TDTs”) must submit their Annual CRS Compliance Certification Form no later than 30 September, or face penalties for any submission failure.
Enhancing reporting transparency
The Cayman CRS Compliance Form is a relatively new obligation, introduced by the Cayman Tax Authority in April 2020 to enhance reporting transparency among registered entities in the tax haven.
As SS&C noted in the wake of the new rule’s introduction, “there is particular importance surrounding the common reporting standard in the Cayman Islands, with the majority of fund managers having funds domiciled in the Cayman Islands.”
The Compliance Form expands the requirements of the Cayman automated exchange of information (AEOI) regime, and affects all managers with funds domiciled in the jurisdiction. The Form is in addition to financial institutions’ regular Cayman CRS Returns, which are submitted on 31 July of each year. While the regular filings concern accounts that have met the criteria to be ‘reportable,’ the Compliance Form details ‘non-reportable’ investors in the fund, providing more drill-down insights into why these investors are marked as not reportable and what holdings they have.
Detailed fund information obligations
The information required in the form to provide an aggregated view across the fund demands considerable detailed data. This includes the total value of the institution’s financial accounts for the reporting period (e.g. an investment fund’s net asset value), the reason why accounts are deemed non-reportable, and the total number and value of non-reportable accounts (including a breakdown of US and ‘other’ persons). The form also seeks information on institutions’ AML/KYC processes to drill into the companies’ structure and governance to confirm their bona fides.
Essentially the form achieves two goals: it evaluates the procedures financial institutions have in place, and reveals how many investors in the funds are not reporting and why – information that can be analysed in conjunction with the regular CRS reporting to ensure investors aren’t avoiding their tax obligations.
The Compliance Form, observed the SS&C blog, will be used “as a risk management tool to assign risk profiles to Financial Institutions based on the additional information obtained, which will also allow a targeted audit selection.” Cayman Islands funds that correctly file the CRS Compliance Form in turn can strengthen their profile by demonstrating compliance with the DITC and showing they are not a vehicle for tax evasion.
Easing your CRS compliance workload
Compiling the comprehensive datasets to complete the CRS form, and ensure the entries are accurate, entails a lot of work. Firms need to identify the fund investors and their residency, split them out into reportable and non-reportable, collate the appropriate investor numbers and their balances, and report all the information on time through the DITC portal.
For many institutions, that is a manual, onerous process that eats up valuable time and in-house resources. Or they can engage a consultant to do the work on their behalf – at a fee.
Automating the task offers a fast, reliable, more cost-effective alternative. Automated system logic able to extract the appropriate data from a firm’s IT platform and populate the document turns reporting compliance into a click-of-a-button job. Regulators and tax authorities are kept happy. Staff eliminate their report compilation burden. And institutions avoid the reputational risk of non-compliance.
With so many funds caught up in the requirements, automating the problem away is the logical solution to firms’ annual reporting headaches.
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