The Lawyer global offshore report – The Cayman Islands

The proposed new law seeks to provide for cooperation between the Cayman Islands and other jurisdictions in relation to the exchange of information regarding taxation matters.

The Tax Information
Exchange Authority Bill 2003
The proposed new law seeks to provide for cooperation between the Cayman Islands and other jurisdictions in relation to the exchange of information regarding taxation matters. It will bring the existing US Tax Information Exchange Agreement (entered into in November 2001 by the US, UK and Cayman governments to facilitate the exchange of information between them relating to US federal income taxes) and all future tax information exchange agreements (TIEAs) into Cayman domestic law.

Private sector associations have voiced their concerns with the current draft, most notably the bill’s intention to bring TIEAs, which have not yet been drafted, into the islands?domestic law. It has also been suggested that future TIEAs should be limited to the exchange of information relating to criminal tax matters and/or tax evasion only.

The EU Savings Directive
In February 2004, the Cayman government agreed conditionally to introduce legislation to comply with the exchange of information obligations in the EU Savings Directive, with effect from 1 January 2005. The agreement was conditional on all EU member states, associated and dependent territories of EU member states, and other third countries, also implementing the directive. The date has now passed and no regulations or guidance notes in relation to the proposed law have yet been circulated in the islands.

In return for agreeing to introduce this domestic legislation, the Cayman government managed to secure a number of financial benefits for the islands, the most notable being the formal recognition by the UK Inland Revenue, in March 2004, of the Cayman Islands Stock Exchange (CSX). This has led to a significant increase in new listings on the CSX.

The directive seeks to establish a multinational cooperative of information exchange, for the purpose of curbing tax evasion and tax avoidance by EU residents. Its measures are limited and will impose obligations only on “paying agents” within Cayman who make or hold payments of “savings income” (which broadly relates to any income that contains or derives from interest earned on a money debt) for individuals who are tax residents of EU member states.

Proposed new Part V of the Companies Law
The proposed new Part V of the Companies Law deals with insolvency and reorganisations of companies in Cayman. The purpose of the proposed law is to simplify and improve current insolvency/reorganisation practices in the islands, as well as to modernise current practices by introducing concepts currently recognised by English statute, such as shadow directorships, voidable preferences, transactions at an undervalue and wrongful trading.

The proposed new law is almost at bill stage and is likely to be enacted this year.

The Immigration Law 2003/Immigration Regulations 2004
The Immigration Law deals with all aspects of immigration, such as ‘Caymanian’ status, permanent residency in the islands, the issuing of work permits, asylum, deportation and entry into the islands. The main features of the new law are that it lengthens the period for which a work permit can be granted to non-Caymanians (up to three years in most cases, and up to five years for teachers, doctors and other specified individuals) and it sets a time limit of seven years on the number of years a work permit holder can work continuously in the islands, unless the worker is an “exempted employee” in a business staffing plan or if there are exceptional circumstances.

The Proceeds of Criminal Conduct (Amendment) Law 2003
The law established the Financial Reporting Authority, a financial intelligence unit responsible for receiving, requesting, analysing and disseminating the disclosure of financial information (a) concerning the proceeds, or suspected proceeds, of criminal conduct, and (b) required in order to counter money laundering. The law also set out the authority? powers, functions and duties, and established the Anti-Money Laundering Steering Group, a body responsible for
the general oversight of the Cayman government? anti-money laundering policy.

The Criminal Justice (International Cooperation) Law (2004 Revision)
This consolidated the Misuse of Drugs (International Cooperation) Law (2000 Revision) and The Misuse of Drugs (International Cooperation) (Amendment) Law 2003.

The law provides for mutual legal assistance in offences to which the law applies (namely any offence under the laws of the islands, or conduct that would constitute an offence if it had occurred in the islands) between Cayman and any of the countries or territories listed in Section 2 of the first schedule to the law. Mutual legal assistance includes the taking of evidence or statements, affecting service of judicial documents, executing searches and seizures, examining objects and sites and providing information and items of evidence.

Diarmad Murray is a litigation partner at Walkers, the Cayman Islands