Cayman Islands Update: Economic Substance and CbCR – January 2021

Sample ES Returns

 Sample ES Returns and other forms have also been modified.

A key update is that the provision of Ultimate Beneficial Ownership data is optional except where: (i) the ‘relevant entity’ carries on high risk IP business; (ii) the relevant entity carries on a ‘relevant activity’ but is claiming to be TRO; or (iii) the relevant entity declares that it has not met the relevant economic substance test.

With respect to financial statements / books of account, the sample ES Returns now provide that:

 “The Entity should provide appropriate documents (i.e. financial statements or books of account) that give a true and fair view of the state of the Entity’s affairs and to explain its transactions. For the avoidance of doubt, the Authority does not expect underlying documents such as contracts and invoices. Furthermore for an Entity where only consolidated accounts are prepared, the documentation used to prepare the consolidated accounts and showing the Entity’s affairs, would be sufficient.”

The sample form for a TRO entity has also been updated to clarify that while the form has to be fully completed in the first year, in all subsequent years, only updates and / or changes are required.  Where such updates and / or changes need to be made, the entire form becomes editable for the subsequent periods.

The DITC advises that its online economic substance portal (the “DITC Portal”) should accept ES Returns and TRO submissions by the end of this month.

Responsible Persons

A relevant entity that conducted a relevant activity in 2020 for the purposes of the ES regime is required to notify the DITC (“ES Notification”) through its registered office service provider as part of completion of the entity’s general registry annual return for 2021.  The ES Notification must also identify a person, being a director, manager or equivalent fiduciary of the entity, who will be the primary contact point for the DITC (“Responsible Person”).  The Responsible Person will be provided with access to the DITC Portal for the purposes of filing ES Returns.

In scope client entities to whom the Maples Group provides the registered office and which have not yet notified the Maples Group of the identity of the Responsible Person should do so as a matter of priority in order that the Maples Group can complete the filing of the ES Notification with the DITC.

The DITC advises that Responsible Persons who already have an account on the DITC Portal (for CRS / FATCA reporting) will see their ES entities automatically added to that profile once ES reporting becomes available.  Responsible Persons who do not already have an account will receive an activation email from [email protected].

It is recommended to ensure that the email address is not blocked by spam filters.

Outsource Service Providers

The January Advisory confirms that the portal is now open to register Outsource Service Providers (“OSPs”) and refers to industry guidance previously issued in an earlier industry advisory.

Country-by-Country Reporting

With respect to Country-by-Country Reporting (“CbCR”), the CbCR Portal is now open and available for Notification and Reporting submissions.  A DITC update issued on 18 December 2020 provides the web address for the CbCR Portal, which can also be found in the CbCR section of the DITC website.

The new deadline for submitting notifications and reports for all CbCR is as follows:

28 February 2021

• Deadline for Constituent Entities¹, where their CbCR reporting entities are resident in the Islands, to make the CbCR Notification for all Constituent Entities resident in the Cayman Islands for those MNE Groups with a Fiscal Year that ends on or before 28 February 2020.
• Deadline for CbCR reporting entities resident in the Cayman Islands to make the CbC Report for their MNE Groups for any fiscal year that ended on or before 28 February 2020 (otherwise, the deadline for reporting in respect of any subsequent fiscal year is within 12 months of the end of that relevant fiscal year).

It is important to note that the CbCR portal currently remains separate from the DITC Portal for purposes of economic substance and AEOI submissions.

The update further notes that amended guidance dated 16 December 2020 has been issued which amends the Tax Information Authority’s CbCR Guidance v1.1 dated 4 May 2018 and also replaces its CbC XML Schema – User Guide dated 4 May 2018.

If you have any questions relating to the ES Returns, the DITC Portal or ES generally, including accounting and / or filing services for ES Returns for holding companies, please reach out to any of the below members of our dedicated Regulatory & Compliance team or your usual Maples Group contact.

¹  Please refer to our client update of December 2017 for a discussion of ‘Constituent Entity’ and ‘MNE Group’.