The cooperation in tax matters between the US and Cayman Islands began in 2014, when the agreement regarding automatic exchange of tax information under US Foreign Account Tax Compliance Act (FATCA) between Cayman Islands and the US entered into force. FATCA is a U.S. legislative act which aims at preventing US citizens living abroad from committing tax evasion.
The information exchange agreement requires Cayman financial institutions to directly report information regarding bank accounts and non-financial entities owned by US residents to Cayman Islands’government. The reported information will be further transferred to US Internal Revenue Service (IRS).
The information exchange agreement is based on Model 1 IGA of FATCA, which is becoming a global standard for multilateral automatic exchange of tax information. Model 2 IGA of FATCA would allow Cayman financial institutions to report directly to IRS.
Commenting on the agreement, a U.S. governmental official stated: “by working together to detect, deter, and discourage offshore tax abuses through increased transparency and enhanced reporting, we can help build a stronger, more stable, and accountable global financial system”.The US is not the only country with which Cayman Islands shares financial information. Shortly before signing the US FATCA agreement, Cayman Islands signed a FATCA-type agreement with the UK.