Cayman Islands pledges automatic exchange of information on taxpayers with G5

Cayman's Minister for Financial Services is currently in London for discussions with the Treasury and HM Revenue and Customs (HMRC), centring on implementation of the G5 pilot and the Foreign Account Tax Compliance Act (FATCA), a US agreement which forms the basis of the automatic information exchange. The country has also pledged to review its financial services legal and regulatory framework, including its money laundering and financial crime laws.

Announcing their pilot automatic information exchange arrangement earlier this month, finance ministers for the G5 indicated that it would "provide a template" for a wider multilateral agreement. The pilot is based on their model agreement to implement FATCA with the US, which was published in July 2012. The UK, France, Germany, Italy and Spain are currently participating in the scheme.

Juliana O'Connor-Connolly, Premier of Cayman, said that the agreement would continue the country's "global commitment" to the exchange of information for tax purposes. Cayman has exchanged taxpayer information with EU member states for the purposes of the EU Savings Directive since 2005.

"We welcome these efforts to promote an effective global mechanism for automatic exchange of information for tax purposes, in which all jurisdictions participate and where a common approach will not only ensure efficiencies of cost and resources, but will also avoid the risk of multiple competing standards," O'Connor-Connolly said.

"Accordingly, we would call on other jurisdictions to commit to this initiative, which will take us to a new level of tax transparency and remove hiding places for those who would seek to evade tax and dodge their responsibilities," she said.

FATCA is a US law designed to prevent tax evasion by US citizens using offshore banking facilities. It introduces reporting requirements for foreign financial institutions (FFIs) with respect to accounts held by US residents, irrespective of national privacy laws. Institutions which do not collect and report this information can be subject to a 30% 'withholding tax' on US source income and proceeds from the sale of US securities.

Tax expert Phil Berwick of Pinsent Masons, the law firm behind Out-Law.com, said that the Cayman Islands had been "widely anticipated" to enter into a formal tax information exchange agreement with the UK. The British Virgin Islands (BVI) is expected to agree to similar disclosure obligations, with other jurisdictions expected to follow, he said.

"Criminal investigation, or significant civil penalties of up to 200% of unreported tax liabilities, will continue to be a risk for taxpayers who hope to evade capture by HMRC," he said. "It is not just financial institutions' reporting requirements that pose a threat to tax evaders, but also the risk of leaks including data theft."

"HMRC continues to close the net on tax evaders. Taxpayers with undisclosed income or gains should take advice from specialists to establish what their options are," he said.

Commenting on the announcement by the Cayman Government, UK Chancellor of the Exchequer George Osborne urged other countries to enter into similar commitments.

"We welcome the decision made by the Cayman Islands Government to commit to multilateral automatic information exchange and the production of an action plan to strengthen its anti-money laundering regime," he said. "We urge others to enter into similar commitments which will take us to a new level of transparency and remove hiding places for those who would seek to evade tax and hide their assets."