Tag Archives: Cayman Islands

The Financing Of Corporate And Private Aircraft – Some Cayman Islands Considerations

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The Cayman Islands has long been a leading jurisdiction for aviation finance transactions in both the commercial and business jet sectors. Among the reasons for this are the Cayman Islands’ tax neutral status, its political stability, the developed, English-based legal system, supporting infrastructure and high-quality service providers, the flexible and commercial nature of its legislation and its adherence to international standards of compliance.

In addition, in relation to locally-registered aircraft for private use (note that Cayman also has a Bis83 arrangement in place with Saudi Arabia), the Cayman Islands Aircraft Register maintained by the Civil Aviation Authority of the Cayman Islands (the “CAACI”), has earned a reputation as one of the most highly respected, user-friendly and recognized aircraft registers across the aviation industry.

In the corporate and private jet sphere, whilst many such aircraft are (and will continue to be) cash purchases, in recent years an increasing number of such aircraft have been financed with bank finance – whether with respect to new or used aircraft and/or pre-delivery payments. Such financings are very frequently structured using a Cayman Islands exempted company as the vehicle which finances, acquires title to, and then operates the aircraft.

This article, therefore, explores some of the features and issues which may arise in corporate and private jet financing transactions involving the Cayman Islands.

The SPV

Typically, the structure will involve the establishment of a new company, a special purpose vehicle (“SPV”), the sole activities of which will be to finance, own and operate the aircraft. Unlike in a commercial aircraft transaction, the acquisition of the aircraft is mostly for the operator’s private use and, consequently, there will not generally be a leasing arrangement to a lessee/airline but there may instead be an operator/management agreement with a professional operator/MRO.

Additionally, again unlike in many commercial deals which often involve a bankruptcy-remote orphan trust structure, the SPV will generally be within the direct ownership of the principal behind the transaction, whether a large multi-national corporate or a high net worth individual.

Some features of a Cayman Islands exempted company:

  • the establishment and maintenance of a Cayman exempted company is straightforward, quick and cost-competitive. The company is incorporated on a same day basis and the certificate of incorporation may be obtained overnight;
  • the Cayman Islands is a tax neutral jurisdiction and, as such, there are no direct taxes or withholdings applicable to the SPV under Cayman Islands law. In addition, the SPV, as a Cayman exempted company, may obtain an undertaking as to tax concessions issued by the Governor-in-Council of the Cayman Islands, which guarantees an exemption from any changes to the zero tax regime in the Cayman Islands for a period of 20 years from the date of the undertaking;
  • there are no minimum capital requirements for a Cayman exempted company under the laws of the Cayman Islands (save in the case of certain regulated entities), although there must be at least one share in issue at all times;
  • there is no Cayman law requirement to have locally resident directors or other officers or to hold shareholder or director meetings physically in Cayman. A Cayman exempted company must, though, maintain a registered office in the Cayman Islands and keep certain corporate records and registers at such registered office;
  • there is no statutory requirement to prepare annual accounts or to file accounts in the Cayman Islands. The SPV will be required to keep such books of account that give a true and correct view of its affairs; and
  • the Cayman AML/KYC regime complies with international standards and will, therefore, be familiar to most transaction parties.

Financing and Security Documentation

The SPV will enter into certain documentation providing for the financing of the aircraft, including, typically, an aircraft sale and purchase agreement, a loan facility agreement and security documentation.

Title to the aircraft will be transferred to the SPV by way of a bill of sale. If the aircraft is new, this will come from the manufacturer; if used, title will be derived through the chain of ownership effected via bills of sale back to the manufacturer.

The security package would normally include an aircraft mortgage between the aircraft owner (and, if, for example, a US foreign owner trust structure, also the beneficial owner) and the lender and one multi-party agreement or separate security assignment/s of the SPV’s/operator’s rights under the various contracts relating to the maintenance and operation of the aircraft – for example, the operating/management agreement, maintenance programmes and policies of insurance over the aircraft and assignments of manufacturers’ warranties.

Additionally, the lender may take a charge over the shares of the SPV. As part of the share charge, the lender will also receive and retain certain ancillary “deliverables”, all designed to facilitate and allow the lender to take control of and potentially sell, the SPV and, thereby, the underlying aircraft on an enforcement. These may consist of some or all of the following – (i) the original share certificate (if any) with respect to the charged shares, (ii) an executed, undated blank share transfer form, (iii) executed but undated resignation letters from the SPV’s directors and accompanying letters of authority to date the same on an enforcement, (iv) an irrevocable proxy in favour of the lender permitting it to vote the shares in the SPV on an enforcement, and (v) an undertaking from the SPV (and, potentially also from its registered office provider), inter alia, to co-operate with and take instructions directly from the lender on an enforcement. The SPV’s articles of association may also be amended to include certain share charge-related provisions. As a further protection for the lender in this context, it is also possible in Cayman to have a “stop-notice” recorded with the Cayman courts and served upon the registered office of the SPV, which will have the effect of preventing the registered office from registering a transfer of the relevant shares until 14 days after sending notice thereof to the lender.

Usually, the security package will include a deregistration power of attorney/irrevocable deregistration and export request authorization (IDERA). Where the aircraft is registered on the Cayman Aircraft Register, it is possible to file a copy of such deregistration power of attorney/IDERA with the CAACI and obtain their acknowledgement thereof. Additionally, where the Cayman Cape Town Convention Law applies (see below), that Law provides that the CAACI will in general terms honour a request for deregistration and export in accordance with the relevant provisions of the Cape Town Convention.

Further, it is typical in a corporate/private jet financing for the principal/the ultimate beneficial owner of the SPV (in many transactions, the “true credit”) to provide a guarantee.

In a PDP financing, the security package may consist of the aforementioned guarantee, a security assignment of the purchase contract for the aircraft (or of the SPV’s assignment thereof) and often also a share charge.

All of the principal transaction documents – save for the charge over shares, which will commonly be Cayman law-governed – will be written under laws other than Cayman Islands law, for example English law/New York law/Hong Kong law.

Almost invariably, Cayman counsel will render a Cayman Islands law corporate and enforceability opinion addressed to the lender/other interested parties as to the SPV and its entry into and performance of the transaction documents. Where the aircraft is registered on the Cayman Aircraft Register, and additionally where a mortgage over that aircraft is registered on the Aircraft Mortgage Register, such opinion will also include confirmations as to such registrations.

Security Filings etc.

Save as described below, there is no security register in Cayman and, accordingly, no Cayman concept of “perfection” by security filing. As an internal administrative matter, the SPV is required to maintain at its registered office in Cayman, a register containing details of all mortgages and charges specifically affecting its property. This is not a perfection matter and does not go to the effectiveness of the security created nor to priority. It is, however, in the lender’s interest that this register is properly updated at the time of closing and a certified copy of such updated register is customarily, therefore, a closing deliverable. Further, in the context of a share charge, the lender may also require that the SPV’s register of members be annotated to record the details of the relevant security over the SPV’s shares. (Of course, if the chargor is also a Cayman company, its own register of mortgages and charges will need to be similarly updated.)

With respect to aircraft registered on the Cayman Islands Aircraft Register, it is possible to register a mortgage over such aircraft on the Cayman Islands Aircraft Mortgage Register maintained by the CAACI. Such registration will go to priority but not validity. There is no prescribed form of mortgage that may qualify for registration and it can be, and most often is, governed by a foreign law. A registered mortgage is given statutory priority over subsequently registered mortgages and unregistered mortgages, although possessory liens for work done to the aircraft (whether before or after the mortgage was created) or over persons lawfully entitled to possession of the aircraft, or with a right to detain the aircraft, will have priority over a registered mortgage. It is also possible to file one (or successive) 14-day priority notice/s with the CAACI to preserve the mortgagee’s priority position pending a mortgage registration.

Cayman Cape Town Convention Law

It should be noted that, whilst the Convention on International Interests is Mobile Equipment and the corresponding Protocol on matters specific to Aircraft Equipment have not yet been adopted by the Cayman Islands, Cayman has enacted its own legislation in the Cape Town Convention Law, 2009. This provides for a regime for the constitution, recognition and registration of statutory “international interests” which reflects the principles and framework for the constitution, recognition and registration of international interests found in the Convention itself and allows, inter alia, for an SPV to opt to make an election that the provisions of such Law shall apply to it.

Enforcement/Creditor-friendly

The Cayman courts will commonly recognize and enforce foreign law contractual and security arrangements, provided such matters are validly created under such other laws. They will also customarily recognize self-help remedies, which will, thus, allow a lender to take possession of the SPV or the aircraft via the security granted in its favour without the requirement for a Cayman court order.

The lender will not be deemed to be resident, domiciled or carrying on business in the Cayman Islands as a result solely of the entry into/performance and/or enforcement of the relevant transaction documents, nor is it the case that the lender must necessarily be licenced, qualified or otherwise entitled to carry on business in the Cayman Islands in order to enforce its rights under such transaction documents.

In the event of the insolvency of the SPV, as a matter of Cayman Islands law, the lender’s position and priority as a secured creditor would in general terms be preserved.

Conclusion

When selecting a jurisdiction for an aircraft transaction and/or to provide aircraft and aircraft mortgage registration services, the parties will require consistency of application of laws and procedures, a safe and stable political environment with no unnecessary jurisdictional risks, a lack of additional tax consequences, certainty as to how security and contractual rights may be enforced, a universally recognized aircraft registry, and high-quality professional support. Cayman meets all of these needs.

Originally published in Corporate Jet Investor in September 2014.

Impact Of FATCA On Cayman Islands Entities

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This publication provides a brief overview of the expected impact on entities incorporated in the Cayman Islands of (a) the foreign account tax compliance provisions (“FATCA“) of the Hiring Incentives to Restore Employment Act, 2010 of the United States of America (the “US“); and (b) equivalent rules implemented in relation to United Kingdom (UK) taxpayers.

1. BACKGROUND

FATCA is a US federal law that aims to reduce tax evasion by US persons. FATCA has significant extra-territorial implications and, most notably, requires foreign financial institutions (“FFIs“, discussed further below) to report information on accounts of US taxpayers to the US Internal Revenue Service (“IRS“). If an FFI fails to enter into the necessary reporting arrangements with the IRS, a 30% withholding tax is imposed on US source income and other US related payments of the FFI.

In order to facilitate reporting under and reduce the burden of compliance with FATCA, the Cayman Islands has signed a Model 1B intergovernmental agreement with the US (the “US IGA“).The US IGA allows Cayman Islands entities that are FFIs to comply with the reporting obligations imposed by FATCA without having to enter into an agreement directly with the IRS. Instead, a Cayman Islands FFI may report directly to the Cayman Islands Tax Information Authority (the “TIA“) and, provided it complies with the relevant procedures and reporting obligations, will be treated as a deemed compliant FFI that is not subject to automatic withholding on US source income and other US related payments.

While this publication is principally focused on FATCA and the US IGA, it is important to note that the UK has implemented an equivalent reporting regime in relation to UK citizens (“UK FATCA“).The UK regime, which is similar to FATCA, however does not impose withholding on UK source income, has been implemented by means of an intergovernmental agreement between the Cayman Islands and the UK (the “UK IGA“). A brief summary of UK FATCA and its impact on Cayman Islands entities is included in section 7 below.

2. WHAT DOES FATCA MEAN FOR YOUR CAYMAN ISLANDS ENTITY?

The impact FATCA will have on a Cayman Islands entity fundamentally depends on one key question: is the Cayman Islands entity an FFI?

While FATCA has significant implications for Cayman Islands entities that are FFIs – such as banks, custodians, hedge funds, private equity funds, trust companies, trusts and other regulated entities – a typical Cayman Islands holding company or joint venture vehicle will not generally be an FFI and should not be materially affected by FATCA.

Accordingly, the first step a Cayman Islands entity needs to take is to determine its FATCA classification and in particular whether or not it is an FFI. A broad summary of how to determine whether your Cayman Islands entity is an FFI, and a description of the steps that must be taken if the Cayman Islands entity is an FFI, are addressed in sections 3 and 5 below.

Any Cayman Islands entity that is not an FFI – such as a typical Cayman Islands holding company – will be a non-financial foreign entity (a “NFFE“) for the purposes of FATCA. Cayman Islands NFFEs are not generally subject to registration or reporting requirements under FATCA, but they will be required to self-certify their status to financial institutions and other withholding agents with whom they maintain accounts to avoid FATCA withholding. This is discussed further in section 4 below.

3. WHEN WILL A CAYMAN ISLANDS ENTITY BE CLASSIFIED AS A “FOREIGN FINANCIAL INSTITUTION” OR (“FFI”)?

FATCA is very complex and a detailed analysis is required in each case to determine if a Cayman Islands entity is in fact a FFI. However, generally, the following four categories of Cayman Islands entities will be FFIs and be directly affected by FATCA’s registration and reporting requirements:

  • Investment Entities: Broadly, an entity that conducts (or is managed by an entity that conducts) trading or portfolio and investment management activities as a business on behalf of a customer or otherwise invests, administers or manages funds or money on behalf of other persons.
  • Custodial Institutions: An entity that holds, as a substantial portion of its business (broadly, more than 20% of gross revenues), financial assets for the account of others.
  • Depository Institutions: An entity that accepts deposits in the ordinary course of a banking or similar business and regularly engages in one or more of the following activities (a) provision of credit; (b) trading in receivables, notes or similar instruments; (c) issues letters of credit; (d) provides trust or fiduciary services; (e) finances foreign exchange transactions; or (f) deals in finance leases or leased assets.
  • Specified Insurance Companies: An insurance company (or its holding company) that issues, or is liable under, certain cash value or annuity contracts.

Set out below are categories of Cayman Islands entities that Conyers frequently deal with alongside some basic guidance on whether such Cayman Islands entities will be FFIs. In cases where such entities may be FFIs, we also consider whether any exemption to registration and reporting may be available.

Hedge funds and private equity funds

Almost all hedge funds and private equity funds will be Investment Entities and therefore qualify as FFIs under FATCA. The one exception is that funds where more than 50% of the gross revenues are from real estate (or other non-financial assets) will generally fall outside the definition of Investment Entity (and therefore FFI) for the purposes of FATCA.1 There are some other limited exemptions available to hedge funds and private equity funds, but these are expected to be of limited practical use for the vast majority of such funds.

It is important to note that, where a master-feeder structure is used, both the master fund and the feeder fund will be FFIs. Furthermore, a subsidiary Cayman Islands trading entity of a hedge fund is also likely to be an Investment Entity and therefore an FFI.2 In section 6 below, we discuss the possibility of using a “Sponsoring Entity” to facilitate FATCA compliance for structures with multiple FFIs.

Cayman Islands managers and advisers of hedge funds and private equity funds

Cayman Islands entities that act solely as managers and advisers of hedge funds and private equity funds will typically not need to register and report as FFIs.

Although Cayman Islands managers and advisers fall within the definition of Investment Entity (and therefore FFI), the US IGA contains an exemption for a Cayman Islands FFI that qualifies as an Investment Entity solely because it (a) renders investment advice to, and acts on behalf of, or (b) manages portfolios for, and acts on behalf of, a customer for the purposes of investing, managing, or administering funds deposited in the name of the customer with a participating FFI. Accordingly, Cayman Islands managers and advisers will generally not be required to register with the IRS and report on their own account. They may, however, be required to self-certify as NFFEs.

Cayman Islands holding companies and joint ventures

As noted above, a typical Cayman Islands holding company or joint venture vehicle that owns assets on its own account and does not operate as an investment fund would not generally be expected to be an FFI for the purposes of FATCA. Rather, this type of Cayman Islands holding company will generally be a NFFE (discussed in section 4 below).

However, the directors of a Cayman Islands holding company that has or wishes to open a bank or securities account will still need to consider their FATCA classification carefully. Such a Cayman Islands holding company will likely be required to certify their status to the relevant financial institution to avoid withholding, as discussed in section 4 below.

Cayman Islands securitization vehicles

A typical Cayman Islands securitization vehicle will normally be an Investment Entity and therefore an FFI for the purposes of FATCA, subject to limited transitional relief for pre-existing vehicles.

Financing SPVs

Cayman Islands entities that are established solely for the purpose of borrowing or granting security in relation to the provision of debt finance to an underlying business typically will not be FFIs. Similarly, Cayman Islands entities which are established to own and finance aircraft, ships or other form of moveable asset of a similar nature would not typically fall within the definition of an FFI.

Trusts with a Cayman Islands trustee

The treatment of trusts under FATCA is complex. The Cayman Islands FATCA rules only apply to a trust if the trustee is a Cayman Islands entity or is an individual resident in the Cayman Islands. Subject to some complex optionality for trustees, the majority of trusts that have a Cayman Islands trust company acting as trustee will likely be FFIs for FATCA purposes.

Private trust companies (“PTCs“) are also likely to be FFIs for the purposes of FATCA, although this needs to be considered in each case. In particular, if the PTC and its directors are not remunerated for acting as trustee, the PTC and the underlying trust may conclude that it does not meet the definition of an FFI on the basis that the PTC is not conducting business. This is a topic that should be discussed with your adviser.

Clients with trusts that have Cayman Islands trustees or a Cayman PTC are advised to liaise with their advisers to determine the most appropriate course of action for their trust.

Insurance companies

Only insurance companies that issue or are required to make payments with respect to a cash value insurance contract or an annuity contract will be FFIs pursuant to FATCA. Captive insurers and insurance companies that do not write annuities or whole life insurance products will generally be NFFEs.

Branches and foreign subsidiaries

Branches of entities are treated separately for FATCA purposes – an overseas branch of a Cayman Islands FFI will not be covered by the Cayman Islands IGA and must consider the rules applicable in that branch’s jurisdiction, whether under an IGA or the US regulations. A foreign subsidiary of a Cayman Islands FFI must also comply with the FATCA rules in its home jurisdiction.

4. CAYMAN ISLANDS ENTITIES THAT ARE NOT FFIS

As noted above, any Cayman Islands entity that is not an FFI – such as a typical Cayman Islands holding company – will be a NFFE. Although NFFEs are not generally subject to registration or reporting requirements, they will still be required to self-certify their status to financial institutions with whom they maintain financial accounts to avoid FATCA withholding.

In this regard, the US W8-BEN-E form has recently been amended to require entities to confirm their FATCA classification to US withholding agents and provide related information with respect thereto. Cayman Islands entities that hold accounts with financial institutions can certainly expect to complete these W8-BEN-E forms and provide other FATCA related certifications.

There are two categories of NFFE:

  • Active NFFE: The criteria which would qualify a NFFE as being an Active NFFE are numerous, and include where less than 50% of its gross income for the preceding calendar year is passive income (such as dividends, interest, royalties, annuities and rent) and less than 50% of the assets held during the preceding calendar year or other appropriate reporting period are assets that produce or are held for the production of passive income. For Active NFFEs, completion of the W8-BEN-E form essentially only requires completing the information on the first page, ticking “Active NFFE” on question 5 and then certifying that the entity is an Active NFFE in question 39.
  • Passive NFFE: Broadly, a Passive NFFE is a NFFE that is not an Active NFFE. For Passive NFFEs, the W8-BEN-E form also requires the NFFE to certify (having done appropriate due diligence) whether or not it has any substantial US owners (broadly, a US person with a 10% or more interest). To the extent it has substantial US owners, the name, address and US taxpayer identification number of each substantial US owner must be provided.

It is important that each Cayman Islands NFFE establishes which category it falls into so it can provide the necessary certification to financial institutions with which it maintains accounts. The W8-BEN-E form is signed under penalty of perjury.

5. WHAT DOES A CAYMAN ISLANDS FFI NEED TO DO TO COMPLY WITH FATCA?

If your Cayman Islands entity is an FFI for which an exemption is not available, you will need to take the following steps:

  1. Obtain a Global Intermediary Identification Number (“GIIN”) by 31 December 2014: Cayman Islands FFIs that are not exempt (“Reporting FFIs“) and certain “registered deemed compliant ” FFIs are required to register on the IRS FATCA registration portal (https://sa2.www4.irs.gov/fatca-rup/) for the purpose of obtaining a GIIN. This registration must occur no later than 31 December 2014, although it is recommended you register as soon as possible to avoid registration congestion at the end of the year.3 If a non-exempt Cayman Islands FFI does not register for a GIIN by this date, the entity will not continue to benefit from the IGA after 1 January 2015 and it will be subject to withholding from US paying agents and other FFIs.
  2. Identify Reportable Accounts: FATCA and the US IGA impose an obligation on Cayman Islands Reporting FFIs to identify and report details of “reportable accounts” to the TIA. “Reportable accounts” are financial accounts where the account holder is either a “Specified US Person” (broadly, any US person or person liable to pay US tax with some exceptions) or is a non-US entity the controlling persons of which include one or more Specified US Persons. Financial accounts include any depositary or custodial accounts and also, in the case of certain Investment Entities, any debt or equity holdings in the FFI. In the case of Cayman Islands funds, the relevant account is the shares/interests each investor holds in the fund.
  3. Identifying reportable accounts involves two separate processes, one for existing accounts and one for new accounts:
    1. Existing accounts: FFIs will also need to perform due diligence on “financial accounts” that they maintained as at 30 June, 2014 (subject to certain de minimis thresholds for small accounts). Specifically, accounts that are reviewed must be searched for prescribed US indicia, including US place of birth and US address. If the account holder is a Specified US Person, details of their account must be reported (as described below). If the account holder is not a Specified US Person but there are US indicia in relation to its account, the Cayman Islands FFI must take steps to “cure” the US indicia. In particular, self-certification by the account holder and further documentation evidencing the person is not a Specified US Person, is likely required. If the account holder does not respond or it is not otherwise possible to cure the US indicia, the account should be treated as reportable. The deadline for completing due diligence on existing accounts depends on a number of factors, including the balance of the account. Most critically, remediation of US indicia needs to be completed on all accounts over US $1 million by 30 June 2015.
    2. New account procedures and due diligence: For new accounts opened with the FFI after 1 July 2014,4 it is necessary to carry out due diligence and obtain self-certification regarding whether the account holder is a Specified US Person. If US Indicia are found that suggest the person may be a US taxpayer, prescribed steps will need to be taken to confirm this. For accounts opened by another participating FFI, the FFI’s GIIN should be obtained and verified against the publicly available IRS FFI list. In general terms, all Cayman Islands FFIs should be revising their account opening forms and/or subscription agreements to ensure they comply with FATCA rules in relation to new accounts. For funds, it is also important to update offering and constitutional documents to ensure FATCA is appropriately addressed.
  4. Reporting: On or before 31 May 2015, Cayman Islands FFIs must make their first report to the TIA in relation to accounts held by Specified US Persons or a non-US entity with one or more controlling persons that are Specified US Persons. The US IGA prescribes the information that needs to be reported. Most significantly, it requires the balance of value of the relevant account held by the Specified US Person to be reported. Expanded information is required for the subsequent reporting period ending 31 May 2016. Upon receipt of a report, the TIA will pass the reported information to the IRS.

6. SIMPLIFIED REPORTING FOR GROUPS OF FFIS

If a group has one or more eligible Investment Entities, the group may elect to register one “Sponsoring Entity” for FATCA reporting purposes. The appointment of a Sponsoring Entity effectively allows all FATCA compliance and reporting to be delegated to one entity in the group. To appoint a Sponsoring Entity:

  1. The Sponsoring Entity must be authorized to act on behalf of the sponsored Investment Entities and agree to carry out all due diligence and reporting obligations on behalf of the sponsored Investment Entities.
  2. The Sponsoring Entity has to register and obtain a sponsoring GIIN.
  3. If the sponsored Investment Entities hold reportable accounts, the Sponsoring Entity will ultimately be required to register each Sponsored Investment Entity that it manages.

A Sponsoring Entity must report to the TIA all reportable accounts of its sponsored Cayman Islands Investment Entities.

7. UK FATCA AND FUTURE REPORTING

UK FATCA follows the FATCA model very closely, although there are some important differences in the detail. In particular, it requires Cayman Islands FFIs to undertake due diligence to identify and then report on financial accounts of Specified UK Persons. As UK citizens are not subject to universal taxation, the definition of Specified UK Persons is not as extensive as under FATCA and generally includes a UK resident and a UK incorporated entity. A non-UK entity controlled by Specified UK Persons is also subject to the reporting obligation.

UK FATCA requires Cayman Islands FFIs to start carrying out due diligence on its accounts and identify Specified UK Persons now, although the first reporting date for UK FATCA is not until 31 May 2016.5 On the first reporting date, specified information on the accounts of Specified UK Persons and non-UK entities controlled by Specified UK Persons must be reported to the TIA.

No withholding tax will be imposed for non-compliant FFIs under UK FATCA. However, under the Cayman Islands implementing legislation there are specific offences for Cayman Islands entities that fail to comply with the reporting obligations of UK FATCA.

A number of banks in the UK have already begun requiring Cayman Islands entities that hold accounts to certify their status under UK FATCA. Accordingly, just as with FATCA, it is important that all Cayman Islands entities determine their UK FATCA classification as soon as possible (which will almost always be the same as under FATCA).

8. CONCLUSION

FATCA is a controversial piece of legislation, not least because it imposes a significant compliance burden on FFIs. However, the automatic exchange of information and increased transparency introduced by FATCA looks to become the global standard. In addition to UK FATCA, forty-seven countries (including the Cayman Islands and all other OECD countries) have committed to implement the OECD’s Common Reporting Standard (the “CRS”). The CRS, which is based on FATCA and requires the automatic exchange of information on assets and income of citizens of all signatory countries, will likely be brought into force around 2017. Accordingly, the implementation of robust systems by Cayman Islands FFIs to comply with FATCA can be viewed as important preparation for what is likely to be a new global standard on information exchange.

For the majority of Cayman Islands entities which are not FFIs, it is very much a case of “business as usual”. Other than having to determine their FATCA classification and certify/evidence their status to financial institutions with which they hold accounts, FATCA and UK FATCA should hopefully have a limited impact on day-to-day operations.

Footnotes

1. In the private equity context, this “gross revenues” test may also exempt Cayman Islands portfolio companies from being Investment Entities.

2. The position is more complex for Cayman Islands subsidiaries of private equity funds and advice should be sought.

3. In order to be included on the IRS GIIN Registration List for 1 January 2015, registration is required by 22 December 2014.

4. Although it should be noted that IRS Notice 2014-33 generally allows FFIs to treat new accounts opened before 1 January 2015 as “pre-existing”, subject to certain modifications of the compliance rules for such accounts.

5. The first reporting period is for 2014 and covers the period from 30 June 2014 to 5 April 2015. This information must be reported to the TIA by 31 May 2016 for onward submission to UK authorities by 30 September 2016.