Competent Authority Agreement on CbC Reports between the United States of America and the Cayman Islands

Summary

This document is the Competent Authority Agreement (technically termed an 'Arrangement') between the Competent Authority of the United States and the Competent Authority of the Cayman Islands, providing the framework for the automatic exchange of Country-by-Country (CbC) Reports. It operates under the 2013 US-Cayman Islands Tax Information Exchange Agreement (TIEA) and implements the OECD BEPS Action 13 CbC reporting standard.

The Agreement is a government-to-government instrument: it does not create new filing obligations directly on private businesses. Instead, it governs how the Cayman Islands DITC, acting as Competent Authority, will receive CbC Reports filed domestically by Reporting Entities of multinational enterprise (MNE) groups resident in the Cayman Islands, and automatically transmit them to the US IRS where a constituent entity of the group is US tax resident or has a US permanent establishment.

• Timing of exchange between the two Competent Authorities
• Format of exchange (XML)
• Confidentiality of exchanged CbC Reports
• Permitted use of the data received
• Error-notification procedures
• Consultation procedures between the Competent Authorities
• Suspension/discontinuation procedures for the exchange

For compliance officers of MNE groups with a Cayman Islands Reporting Entity and US-resident constituent entities, the practical effect is confirmation that CbC Reports filed with the Cayman Islands under domestic law will be shared with the IRS within specified timeframes, and that the IRS's use of that data is limited (e.g., not to be used alone as the basis for transfer pricing adjustments). The document notes the signature block is blank in the copy provided, so the operative/signature date is not shown in this text.

Key obligations

• The Cayman Islands Competent Authority is to exchange automatically each CbC Report received from a Cayman-resident Reporting Entity where one or more constituent entities of the MNE Group are US tax resident or have a US permanent establishment.
• CbC Reports are to be exchanged using a common schema in Extensible Markup Language (XML).
• The US Competent Authority is to notify the Cayman Islands Competent Authority within 15 days of successfully receiving a CbC Report file.
• The US Competent Authority is to notify the Cayman Islands Competent Authority within 15 days of receiving a CbC Report file that cannot be processed.
• Upon notification of a reporting error or noncompliance by a Reporting Entity, the Cayman Islands Competent Authority is to take appropriate measures under its domestic law to address the error or noncompliance.
• The IRS's use of exchanged CbC Report information is limited to assessing high-level transfer pricing and BEPS-related risks and economic/statistical analysis, and may not be used alone as the basis for transfer pricing adjustments.
• Each Competent Authority must notify the other immediately of any use or disclosure of exchanged information inconsistent with the confidentiality and use rules.
• The US Competent Authority must consult with the Cayman Islands Competent Authority before determining a 'systemic failure' has occurred.
• A Competent Authority discontinuing the Arrangement must provide written notice, with discontinuation taking effect on the first day of the month following 12 months after the notice.

Applies to

multinational enterprise groups (MNE Groups), Reporting Entities, Constituent Entities

Deadlines

• Fiscal Years commencing on or after January 1, 2016: CbC Reports for these fiscal years are intended to be first exchanged, no later than 18 months after the last day of the relevant fiscal year.
• Fiscal Years commencing on or after January 1, 2017: CbC Reports for these fiscal years are intended to be exchanged no later than 15 months after the last day of the relevant fiscal year.
• 3 months after this Arrangement becomes operative (if later than the above periods): Deadline for the Cayman Islands Competent Authority to exchange CbC Reports where the standard time periods have already expired before the Arrangement becomes operative.
• 15 days: Period within which the US Competent Authority is expected to notify the Cayman Islands Competent Authority of successful receipt of a CbC Report file.
• 15 days: Period within which the US Competent Authority is expected to notify the Cayman Islands Competent Authority of a file that could not be processed.
• 12 months after notice of discontinuation: Discontinuation of the Arrangement becomes operative on the first day of the month following expiration of this 12-month period.