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Tax is a constantly evolving landscape, even though these unprecedented times during the pandemic. Despite the world grinding to a halt for the best part of the last 18 months, there have been numerous new tax rules, regulations, and trends, locally and globally, to which financial institutions need to adapt to.
There is one particular requirement that may be starting a new global trend.
A new CRS reporting requirement was announced by the Cayman Islands Department for International Tax Cooperation (DITC) in April 2020. The new CRS compliance form is an additional requirement to the annual CRS reporting cycle and must be completed by all Cayman Financial Institutions who maintain Financial Accounts and Trustees Documented Trusts.
This requirement came out of a peer review of Transparency and Exchange of Information for tax purposes - as a Member of the Global Forum on Transparency and Exchange of Information for Tax Purposes, the Cayman Islands are subject to the peer review of the AEOI standard which includes the effective implementation of the CRS. These reviews cover over 100 jurisdictions and result in a rating on the effectiveness of CRS implementation. A critical component of the review is an evaluation of the data collection, analysis and assessment, and compliance functions.
By introducing this additional data collation and reporting requirements on CRS, the Cayman Islands Tax Authority aimed to address one of the critical components of the peer review and ensure data quality. This reporting requirement will also become an annual reporting requirement.
Considering these additional reporting requirements come from the Exchange of Information peer review, it is perhaps not surprising, that the Cayman Islands example was followed by Bermuda about a year later.
On 3 September 2021, the Bermuda Ministry of Finance announced that it will require all reporting financial institutions (RFIs) and trustee-documented trusts (TDTs) to complete an annual common reporting standard (CRS) compliance certification form beginning with the 2020 reporting period. The Ministry took the industry by surprise by announcing that the CRS Compliance Form and the guidance will be available by 15 October 2021, with the first reporting deadline set to 15 December 2021, which gives a very short window for the RFIs to comply.
Going forward, the Ministry will require the form to be submitted no later than 30 September following the end of the reporting period.
In terms of the format of reporting, unlike the Cayman tax authorities who enabled bulk uploads of the CRS Compliance forms, the Bermuda authorities will enable the submission through an online form. The submission will need to be made by the primary or secondary user registered within the portal and bulk uploads are explicitly not permitted.
Bermuda doesn’t have as many Financial Institutions as the Cayman Islands, so we may say it is not such a big deal, also because the heightened compliance measures introduced by Bermuda are similar to those of the Cayman Islands. However, there are other requirements introduced by Bermuda that make it noteworthy.
The Ministry in Bermuda announced that it will begin requiring RFIs to undertake CRS independent compliance reviews. Based on a risk-based approach, the Ministry will identify RFIs and issue notices informing the registered primary user of the RFI that it must engage an approved independent reviewer to perform the CRS review. A separate set of Guidelines was released to help the RFIs with the preparation for the CRS review process.
The Bermuda CRS Compliance form is also more stringent than the Cayman version and potentially more difficult to comply with, as it requires RFIs to include the data about the excluded accounts (which are not part of the due diligence process), the number of excluded accounts and the requirement to upload a copy of its written policies and procedures. It also requires RFIs to certify that there has been reasonable effort to ensure that any missing data (e.g. TINs, dates of birth, etc.) is collected. As part of that certification, it may be advisable for FIs to maintain records of those efforts to be able to evidence that reasonable effort has been made.
These requirements - especially uploading policies and procedures – will likely make the RFIs feel under even more scrutiny. When it comes to Policies and Procedures for example, even if the FIs keep their policies and procedures up to date, the sheer fact that the government authorities will be able to review them, the FIs may be concerned they may find fault in them or disagree with certain interpretations of the regulations where the guidance is unclear.
Even if you currently don’t have a Financial Institution in Bermuda – or in Cayman – the recent developments did make us wonder whether this is starting a trend. If the additional CRS Compliance Form requirements spread across other CRS participating jurisdictions, given how many jurisdictions participate in the Exchange of Information, managing these submissions on a global scale could become a massive undertaking for Reporting Financial Institutions.
It will mean not only additional reporting but in the first instance, collating much more data to satisfy the new CRS Compliance form requirements.
As with other growing regulatory requirements, progressing with digitalisation and using software in effective ways will be critical for the financial institutions to remain compliant, optimise their operating costs, and stay competitive.