Overall findings
The Cook Islands’ legal framework implementing the AEOI Standard is in place but needs improvement in order to be fully consistent with the requirements of the AEOI Terms of Reference. While the Cook Islands’ international legal framework to exchange the information with all of the Cook Islands’ Interested Appropriate Partners (CR2) is consistent with the requirements, its domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1) has deficiencies significant to the proper functioning of elements of the AEOI Standard. Most significantly, deficiencies have been identified in relation to the Cook Islands’ enforcement framework.
The methodology used for the peer reviews and that therefore underpins this report is outlined in Chapter 2.
Overall determination on the legal framework: In Place But Needs Improvement
Conclusions on the legal framework
General context
The Cook Islands commenced exchanges under the AEOI Standard in 2018.
In order to provide for Reporting Financial Institutions to collect and report the information to be exchanged, the Cook Islands:
enacted amendments to the Income Tax Act 1997;
issued the Income Tax (Automatic Exchange of Financial Account Information) Regulations 2017; and
published guidance, which is not legally binding.
Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 January 2017. With respect to Preexisting Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts by 31 December 2017 and on Lower Value Individual Accounts and Entity Accounts by 31 December 2018.
Following the initial Global Forum peer review, the Cook Islands amended its legislative framework to address an issue identified, effective from 4 December 2019.
With respect to the exchange of information under the AEOI Standard, the Cook Islands is a Party to the Convention on Mutual Administrative Assistance in Tax Matters and activated the associated CRS Multilateral Competent Authority Agreement in time for exchanges in 2018.
Detailed findings
The detailed findings for the Cook Islands are below, organised per Core Requirement (CR) and sub-requirement (SR), as extracted from the AEOI Terms of Reference (see Annex B).
CR1 Domestic legal framework: Jurisdictions should have a domestic legislative framework in place that requires all Reporting Financial Institutions to conduct the due diligence and reporting procedures in the CRS, and that provides for the effective implementation of the CRS as set out therein.
Determination: In Place But Needs Improvement
The Cook Islands’ domestic legislative framework is in place and contains most of the key aspects of the CRS and its Commentary requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures but it needs improvement in relation to the scope of Financial Accounts required to be reported and the due diligence procedures to identify them (SR 1.2) and the framework to enforce the requirements (SR 1.4). Most significantly, the Cook Islands does not require records to be kept in accordance with the requirements and it does not have an explicit legal basis to impose or enforce a sanction for non-compliance if the Reporting Financial Institution is a legal arrangement.
SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.
The Cook Islands has defined the scope of Reporting Financial Institutions in its domestic legislative framework in accordance with the CRS and its Commentary.
Recommendations:
No recommendations made.
SR 1.2 Jurisdictions should define the scope of Financial Accounts and Reportable Accounts consistently with the CRS and incorporate the due diligence procedures to identify them.
The Cook Islands has defined the scope of the Financial Accounts that are required to be reported in its domestic legislative framework and incorporated the due diligence procedures that must be applied to identify them in a manner that is largely consistent with the CRS and its Commentary. However, a deficiency has been identified. More specifically, the Cook Islands’ legislative framework does not incorporate the requirements in relation to certain Entities not located in Participating Jurisdictions in line with the AEOI Standard. This deficiency is material to the proper functioning of the AEOI Standard as it does not ensure that all Investment Entities that are not in Participating Jurisdictions are subject to the “look-through” approach to identify their Controlling Persons.
Recommendations:
The Cook Islands should amend its domestic legislative framework to ensure that the approach taken with respect to the two jurisdictions defined as Participating Jurisdictions and with which the Cook Islands does not have an agreement to exchange CRS information with (one of which has not implemented the AEOI Standard), is in accordance with the AEOI Standard.
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
The Cook Islands has incorporated the reporting requirements in its domestic legislative framework in accordance with the CRS and its Commentary.
Recommendations:
No recommendations made.
SR 1.4 Jurisdictions should have a legislative framework in place that allows for the enforcement of the requirements of the CRS in practice.
The Cook Islands has a legislative framework in place to enforce the requirements in a manner that is largely consistent with the CRS and its Commentary. However, deficiencies have been identified. More specifically, the Cook Islands’ legislative framework:
has an anti-circumvention rule that does not cover all relevant persons that may engage in practices to avoid due diligence and reporting;
does not include an explicit legal basis to impose or enforce a sanction where a Reporting Financial Institution is a legal arrangement;
does not include rules requiring Reporting Financial Institutions to keep records in accordance with the requirements; and
has limited sanctions for filing incorrect information as the incorrect filing must be shown to have been either intentional or due to a failure to carry out due diligence.
These deficiencies relate to key elements of the AEOI Standard and are therefore material to its proper functioning.
Recommendations:
The Cook Islands should ensure that its anti-avoidance rule covers avoidance of CRS reporting and due diligence when entered into by Account Holders or intermediaries, not just by Financial Institutions.
The Cook Islands should amend its domestic legislative framework to require Reporting Financial Institutions to keep records of the steps taken and evidence relied upon for the performance of the procedures, rather than permitting either to be kept.
The Cook Islands should amend its domestic legislative framework to ensure that it is able to sanction noncompliance by a Reporting Financial Institution that is a legal arrangement.
The Cook Islands should amend its domestic legislative framework to ensure that sanctions for filing incorrect information are not limited only to intentional reporting of incorrect information or are due to a failure to carry out due diligence.
CR2 International legal framework: Jurisdictions should have exchange relationships in effect with all Interested Appropriate Partners as committed to and that provide for the exchange of information in accordance with the Model CAA.
Determination: In Place
The Cook Islands’ international legal framework to exchange the information is in place, is consistent with the Model CAA and its Commentary and provides for exchange with all of the Cook Islands’ Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from the Cook Islands and that meet the required standard in relation to confidentiality and data safeguards) (SRs 2.1 – 2.3).
SR 2.1 Jurisdictions should have exchange agreements in effect with all Interested Appropriate Partners that permit the automatic exchange of CRS information.
The Cook Islands has exchange agreements that permit the automatic exchange of CRS information in effect with all its Interested Appropriate Partners.
Recommendations:
No recommendations made.
SR 2.2 Such an exchange agreement should be put in place without undue delay, following the receipt of an expression of interest from an Interested Appropriate Partner.
The Cook Islands put in place its exchange agreements without undue delay.
Recommendations:
No recommendations made.
SR 2.3 Jurisdictions should ensure that the exchange agreements in effect provide for the exchange of information in accordance with the requirements of the Model CAA.
The Cook Islands’ exchange agreements provide for the exchange of information in accordance with the requirements of the Model CAA.
Recommendations:
No recommendations made.
Comments by the assessed jurisdiction
No comments made.