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Details Of The US/Cayman Information Disclosure Agreement

by Mike Godfrey,, New York

14 December 2001

Further details are now available of the agreement recently signed between the US and the UK (on behalf of the Cayman Islands) for the 'exchange of information relating to taxes'. The agreement covers information relating to 'the administration and enforcement of the domestic laws of the parties concerning the taxes and the tax matters covered by this Agreement, including information that may be relevant to the determination, assessment, verification,
enforcement or collection of tax claims with respect to persons subject to such taxes, or to the investigation or prosecution of criminal tax evasion in relation to such persons'.

Information has to be provided by the Cayman Government:

  • without regard to whether the person to whom the information relates is, or whether the information is held by, a resident or national of a party; and
  • provided that the information is present within the territory, or in the possession or control of a person subject to the jurisdiction, of the requested party.

The taxes covered by this Agreement are federal income taxes, 'but the types of tax covered may be extended by agreement between the parties in the form of an exchange of letters'. That appears to mean that the UK Government can agree with the US to extend coverage to other taxes.

The agreement covers "criminal tax evasion", which means: 'wilfully, with dishonest intent to defraud the public revenue, evading or attempting to evade any tax liability where an affirmative act constituting an evasion or
attempted evasion has occurred. The tax liability must be of a significant or substantial amount, either as an absolute amount or in relation to an annual tax liability, and the conduct involved must constitute a systematic effort or pattern of activity designed or tending to conceal pertinent facts from or provide inaccurate facts to the tax authorities of either party.'

Information must be provided even if the alleged criminal behavious was not criminal in the Cayman Islands. The signatories agree to provide themselves with the authority to obtain:

  • information held by banks, other financial institutions, and any person, including nominees and trustees, acting in an agency or fiduciary capacity;
  • information regarding the beneficial ownership of companies, partnerships and other persons, including in the case of collective investment funds, information on shares, units and other interests; and in the case of trusts, information on settlors, trustees and beneficiaries.

For the US to make a request under the agreement, it must provide:

  • the identity of the taxpayer under examination or investigation;
  • the nature of the information requested;
  • the tax purpose for which the information is sought;
  • reasonable grounds for believing that the information requested is present in the territory of the requested party or is in the possession or control of a person subject to the jurisdiction of the requested party;
  • to the extent known, the name and address of any person believed to be in possession or control of the information requested;
  • a declaration that the request conforms to the law and administrative practice of the requesting party and would be obtainable by the requesting party under its laws in similar circumstances, both for its own tax purposes and in response to a valid request from the requested party under this Agreement.

US officials are permitted under the agreement to 'enter the territory of the requested party in connection with a request to interview persons and examine records with the prior written consent of the persons concerned', or 'attend a tax examination' in the Cayman Islands.

Information need not be provided if it is subject to legal privilege, or if it would not have been obtainable by the US under its own laws, domestically.

The Agreement has effect from 1st January 2004, which gives plenty of time for people to close their bank accounts in Cayman if they want to!

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