Cayman Islands

Author: | Published: 1 Jun 2005
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Maples and Calder

Address

75 St. Stephens Green Dublin 2 Ireland

Telephone

+353 1 619 2000

Fax

+353 1 619 2001

The Cayman Islands will be implementing measures equivalent to the EUSD (the EU Savings Directive) by way of bilateral agreements with each of the EU member states. Legislation implementing the provisions contained in the model agreement will be put into place for July 1 2005, which is the Directive's implementation date. The Cayman legislation requires a report to be made on interest payments if certain tests are met.

In no case will the Cayman legislation impose a withholding tax. The Cayman legislation, if it applies, requires an information report by the paying agent for onward transmission to a tax authority in the jurisdiction of the individual EU resident.

Banking

On the basis of UK guidance notes, a bank will be considered a paying agent if it is responsible for ensuring that the payment is made. A paying agent has more than a simple passive or supporting role. Accordingly:

  • if an accountholder directs a bank to simply process a payment from its account to an EU resident individual, the individual rather than the bank will be considered the paying agent;
  • if a bank makes an interest payment on a deposit on an account held in the Cayman Islands, the bank will be considered a paying agent; and
  • if the accountholder asks the bank to undertake responsibility for calculating interest payments and/or other functions as opposed to simply processing instructions, then the bank should be considered a paying agent.

If an EU resident individual establishes a personal investment company, and that company sets up an account, an interest payment by the bank to that account would not fall within the definition of relevant payee and would not be subject to the reporting obligations.

Capital markets

If the issuer has its paying agent in New York, or anywhere else outside the EU (or outside a jurisdiction that applies similar or equivalent measures to the Directive), then neither the Directive nor the Cayman legislation will apply.

The Cayman legislation only applies if the issuer's paying agent is in the Cayman Islands.

If the notes/bonds are in global form, held through Euroclear/Clearstream, then any payments made by a Cayman paying agent will inevitably be made to another paying agent and so the Cayman paying agent's payment is not reportable.

Payments to holders of definitive securities by a Cayman paying agent will only be reportable if they are made to individuals resident in the EU and not to institutions or other corporate entities.

If there is still a concern, consider whether a paying agent should be appointed outside of the Cayman Islands, the EU or a jurisdiction that has implemented equivalent measures.

Mutual and hedge funds

In relation to any fund, a dividend payment can only be caught if over 15% of the fund's investments are in debt instruments, while a redemption payment can only be caught if 40% of the fund's investments are in debt instruments.

Even if the definition of interest payment otherwise applies to the dividend or redemption payment, it will not apply to payments by a fund or paying agent in the Cayman Islands of: a fund registered under s4(3) of the Mutual Funds Law (2003 Revision) (the MFL); or any other fund not being a fund licensed under s5 of the MFL; and a closed ended fund. Accordingly payments by or on behalf of such funds will not be subject to the reporting obligations under the Cayman legislation.

Payments by a fund licensed under s5 of the MFL might be caught as they are treated as a Ucits equivalent.

If the fund otherwise within the scope is sold to investors including individuals resident in the EU, then consider:

  • appointing another paying agent outside of the Cayman Islands, the EU or a jurisdiction that is applying similar or equivalent measures to the Directive; or
  • limiting the fund to non-EU individual residents, to avoid the reporting obligations.

If the Cayman fund has its paying agent in the UK, the Republic of Ireland or Switzerland, and if the Cayman fund is: a fund registered under s4(3) of the MFL; or any other fund not being a fund licensed under s5 of the MFL; or a closed ended fund, then, under the local legislation of those jurisdictions, these funds will be treated as non-Ucits equivalent funds and, as such, payments by or on behalf of these Cayman funds would not fall within the relevant definition and are therefore outside the Directive.

Similar treatment will be accorded country by country as all of the bilateral treaties are entered into.

If the issuer has its paying agent in New York or otherwise outside the EU (or outside a jurisdiction that is applying similar or equivalent measures to the Directive), then neither the Directive nor the Cayman legislation will apply.

Anthony Travers