Cayman Islands accountholders must disclose financial affairs “within 30 days”, says HMRC

According to local press reports, Cayman banks will soon begin passing information about accountholders that are UK taxpayers to HMRC ahead of the coming into force of the recently-signed automatic information exchange agreement between the two countries. The agreement, which is one of several that the UK has signed with the Crown Dependencies (CDs) and British Overseas Territories (BOTs), comes into force in 2016 for information in respect of the calendar years 2014 and 2015.

“Anyone with undeclared assets in the Cayman Islands who was thinking that they could put off sorting out their affairs until 2016 will have a rude awakening if they receive one of these letters,” said tax expert Reg Day of Pinsent Masons, the law firm behind Out-Law.com. “HMRC has been provided with £994 million of additional funding and these letters show it has been gearing up its resources, data handling and software capabilities to identify targets for criminal and civil investigations, which would cover the last 20 years.”

“The letters are also a wake-up call for anyone with undeclared assets elsewhere. HMRC is likely to follow the same strategy for the other overseas territories and to start targeting those its intelligence shows may have undeclared assets, before the exchange of information begins in September 2016,” he said.

In November, the Cayman Islands became the first of the BOTs to formalise an automatic information exchange agreement with the UK. The territory has also formally agreed to be part of the G5 multi-lateral information sharing pilot, under which a growing number of countries led by the UK, France, Germany, Italy and Spain will automatically exchange information about bank accounts held by taxpayers from their jurisdictions.

The inter-governmental agreement (IGA) between the UK and Cayman Islands is an example of ‘UK FATCA’, which is modelled on the agreement that the UK has entered into with the US under its Foreign Account Tax Compliance Act (FATCA). FATCA is designed to prevent tax evasion by US citizens using offshore banking facilities, and introduces reporting requirements for foreign financial institutions (FFIs) with respect to accounts held by US residents.

Under UK FATCA-style agreements, FFIs in participating territories will have to provide information to their local tax authorities about accounts held overseas by UK residents. This information will then be provided to HMRC under the exchange of information agreements.

The UK Government announced last May that all BOTs and CDs with significant financial centres had committed to the introduction of information-sharing arrangements. The other participating overseas territories are Anguilla, Bermuda, the British Virgin Islands, Gibraltar, Montserrat and the Turks and Caicos Islands. Agreements with the BOTs are not reciprocal, meaning that information will only flow from the BOT to the UK. The agreements with the CDs - Jersey, Guernsey and the Isle of Man - allow for a two-way exchange of information.