The Cayman Islands Government today released the draft International Tax-Co-operation (Economic Substance) Bill, 2018 "a law to provide for an economic substance test to be satisfied by certain entities; and for incidental and connected purposes" (the "Bill").
The draft Bill is scheduled for debate in the Legislative Assembly later this month, and is expected to be passed to take effect by 1 January 2019. It is the latest in a series of steps by the Cayman Islands to meet its 2017 commitment as an Inclusive Framework member under the OECD's global Base Erosion and Profit Shifting (BEPS) initiative, and in particular BEPS Action 51. It also reflects Cayman's commitment to meet new European Union requirements modelled on BEPS Action 5.
Cayman Finance is pleased that the Cayman Islands Government is moving to adopt the new global standard that will also be applied across the other 123 BEPS Inclusive Framework member jurisdictions. We have always demonstrated the commitment to be a transparent and compliant jurisdiction, responding positively to internationally agreed standards.
Those who establish Cayman structures do not do so to engage in base erosion and profit shifting activity; they do so because Cayman is an efficient neutral hub with key expertise in handling complex transactions. Cayman and its service providers are used to constantly evolving to meet global requirements and we are confident that this latest development will be no different. We anticipate that our sophisticated clients will adapt as required and take this in their stride. It is worth noting that all of Cayman's main competitor jurisdictions are in a similar position as BEPS Inclusive Framework members.
We understand from the Cayman Islands Government that they will, in the near future, be issuing for consultation related guidance notes which will provide additional insight into how the draft legislation is intended to operate in practice.
We encourage our members to familiarise themselves with the Bill and, once the final form is passed into law, we recommend that our members seek Cayman Islands legal advice on what it means for them and their clients.
Footnote
1 BEPS Action 5 focuses on preferential tax regimes which attract geographically mobile income, and October 2018 saw the resumption of the OECD's focus on BEPS Action 5 in the context of "no or only nominal tax jurisdictions".
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