Cook Islands
This report analyses the implementation of the AEOI Standard in the Cook Islands with respect to the requirements of the AEOI Terms of Reference. It assesses both the legal frameworks put in place to implement the AEOI Standard and the effectiveness of the implementation of the AEOI Standard in practice.
The methodology used for the peer reviews and that therefore underpins this report is outlined in Chapter 2.
Overall findings
AEOI legal framework
The Cook Islands’ legal framework implementing the AEOI Standard is in place and is consistent with the requirements of the AEOI Terms of Reference. This includes the Cook Islands’ domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1) and its international legal framework to exchange the information with all of the Cook Islands’ Interested Appropriate Partners (CR2).
Effectiveness of AEOI in practice
The Cook Islands’ implementation of the AEOI Standard is not compliant with the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice. While the Cook Islands is on track with respect to exchanging the information in an effective and timely manner (CR2), there are fundamental issues with respect to ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures (CR1).
Overall rating in relation to the effectiveness in practice: Non-Compliant
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:
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.
Table 1 sets out the number of Financial Institutions in the Cook Islands that reported information on Financial Accounts in 2021 as defined in the AEOI Standard (essentially because they maintained Financial Accounts for Account Holders, or that were related to Controlling Persons, resident in a Reportable Jurisdiction). It also sets out the number of Financial Accounts that they reported in 2021. In this regard, it should be noted that the Cook Islands requires the reporting of Financial Accounts based on a prescribed list of exchange partners and some accounts may be required to be reported more than once (e.g. jointly held accounts or accounts with multiple related Controlling Persons), which is reflected in the figures below. These figures provide key contextual information to the development and implementation of the Cook Islands’ administrative compliance strategy, which is analysed in the subsequent sections of this report.
Table 2 sets out the number of exchange partners to which information was successfully sent by the Cook Islands in the past few years (including where the necessary frameworks were in place, containing an obligation on Reporting Financial Institutions to report information, but no relevant Reportable Accounts were identified). These figures provide key contextual information in relation to the Cook Islands’ exchanges in practice, which is also analysed in subsequent sections of this report.
In order to provide for the effective implementation of the AEOI Standard, in the Cook Islands:
the Revenue Management Division (the tax authority) has the responsibility to ensure the effective implementation of the due diligence and reporting obligations by Reporting Financial Institutions and for exchanging the information with the Cook Islands’ exchange partners;
technical solutions necessary to receive and validate the information reported by Reporting Financial Institutions were put in place through using the tax authority’s IGOR system; and
the Common Transmission System (CTS) is used for the exchange of the information, along with the associated file preparation and encryption requirements.
It should be noted that the review of the Cook Islands’ legal frameworks implementing the AEOI Standard concluded with the determination that the Cook Islands’ domestic and international legal frameworks are In Place. This has been taken into account when reviewing the effectiveness of the Cook Islands’ implementation of the AEOI Standard in practice.
Findings and conclusions on the legal frameworks
The detailed findings and conclusions on the AEOI legal frameworks for the Cook Islands are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
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.
The Cook Islands’ domestic legislative framework is in place and contains all of the key aspects of the CRS and its Commentary requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (SRs 1.1 – 1.3). It also provides for a framework to enforce the requirements (SR 1.4).
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.
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 accordance with the CRS and its Commentary.
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.
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 accordance with the CRS and its Commentary.
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.
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.
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.
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.
Findings and conclusions in relation to effectiveness in practice
The detailed findings and conclusions in relation to effectiveness in practice of AEOI for the Cook Islands are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
The Cook Islands’ implementation of the AEOI Standard is non-compliant with respect to ensuring that Reporting Financial Institutions are correctly conducting the due diligence and reporting procedures. More specifically, while the Cook Islands is meeting expectations with respect to collaboration with its exchange partners to ensure effectiveness (SR 1.6), there are fundamental issues with respect to ensuring effectiveness in a domestic context, such as through having an effective administrative compliance framework and related procedures (SR 1.5).
SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account. This includes having in place:
an effective administrative compliance framework to ensure the effective implementation of, and compliance with, the CRS. This framework should:
be based on a strategy that facilitates compliance by Reporting Financial Institutions and which is informed by a risk assessment in respect of the effective implementation of the CRS that takes into account relevant information sources (including third party sources);
include procedures to ensure that Financial Institutions correctly apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions;
include procedures to periodically verify Reporting Financial Institutions’ compliance, conducted by authorities that have adequate powers with respect to the reviewed Reporting Financial Institutions, with procedures to access the records they maintain; and
effective procedures to ensure that Financial Institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures;
effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions;
strong measures to ensure that valid self-certifications are always obtained for New Accounts;
effective procedures to ensure that each, or each type of, jurisdiction-specific Non-Reporting Financial Institution and Excluded Account continue to present a low risk of being used to evade tax; and
effective procedures to follow up with a Reporting Financial Institution when undocumented accounts are reported in order to establish the reasons why such information is being reported.
In order to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, the Cook Islands implemented some of the requirements in accordance with expectations. However, fundamental issues were identified. The key findings were as follows:
The Cook Islands has implemented a compliance strategy that relies upon communication strategies, such as holding seminars before the reporting deadline to directly assist Reporting Financial Institutions, and working with the Trustee Company service providers who administer the majority of Financial Institutions in the Cook Islands. However, the Cook Islands has not yet developed and implemented a full range of measures to ensure compliance. More specifically, the Cook Islands has not carried out a systematic risk assessment that takes into account a full range of relevant information sources, and has not developed or implemented an overarching strategy to ensure compliance with the AEOI Standard.
The Cook Islands is working to understand its population of Financial Institutions, including relevant non-regulated entities, utilising various relevant information sources including registration details from the financial regulator, the Foreign Financial Institution list for FATCA purposes and information from Trustee Company service providers. However, this appears to be ad hoc and not part of a coherent compliance plan. There are tentative plans for action to ensure that Reporting Financial Institutions are classifying themselves correctly under its domestic rules and reporting information as required, although the scheduling of this has not been determined.
The institution responsible for implementing the Cook Islands’ compliance strategy appears to have the necessary powers to discharge its functions. With respect to resourcing, the Cook Islands has assigned the equivalent of 2 full time staff for legal and technical work, and has up to 0.5 full time equivalent staff assigned to monitoring and ensuring compliance by Reporting Financial Institutions, with access to IT systems and tools.
The Cook Islands has introduced a pre-reporting checklist which is sent to Reporting Financial Institutions annually in April. While some analysis of reported data is carried out for the purpose of obtaining and making corrections, it has not carried out verification activity to test whether due diligence obligations are being fulfilled correctly, including whether self-certifications are obtained when required. The Cook Islands has not verified the appropriateness and effectiveness of the procedures that it permits Reporting Financial Institutions to use to obtain a self-certification after the opening of an account.
The Cook Islands has not carried out a complete range of verification and enforcement activities to ensure compliance with all elements of the AEOI Standard, other than spot checks on reported data and its plans to do so are only at an initial stage of development. Similarly, some education activity has been conducted with Reporting Financial Institutions on the interaction between the AEOI and AML frameworks, which has not yet been directly verified.
The Cook Islands described some follow up action on undocumented accounts which it identifies on an ad hoc basis, but this was not systematic.
The Cook Island has not demonstrated that it has the administrative procedures and capacity to impose and enforce sanctions in the event that non-compliance is detected and has not developed and documented procedures to be applied when it detects any arrangements that were carried out with the intention of avoiding due diligence or reporting under the AEOI Standard.
The Cook Islands plans to review its jurisdiction-specific Excluded Accounts to ensure they continue to pose a low risk of being used for tax evasion purposes.
It is noted that the Cook Islands does not have a jurisdiction-specific list of Non-Reporting Financial Institutions for ongoing monitoring.
Table 3 provides a summary of the specific activities undertaken, or that are planned to be undertaken, in relation to each of the key parts of the framework described above.
The Cook Islands was not able to confirm that it collects and monitors information on the proportion of Financial Accounts that are reported that include information on the Tax Identification Numbers and/or dates of birth with respect to the individuals associated with them. These data points are key to exchange partners to effectively utilise the information and are important to developing an effective compliance strategy to ensure the AEOI Standard is being effectively implemented. The Cook Islands was also not able to confirm that it collects and monitors information on the number of undocumented accounts reported by all of its Reporting Financial Institutions. This information is crucial to implementing the requirement to follow up on undocumented accounts.
Feedback from the Cook Islands’ exchange partners indicated that, compared to what they generally experience when seeking to match information received from their exchange partners with their taxpayer database, they achieved a relatively lower level of success when seeking to match information received from the Cook Islands. Furthermore, seven exchange partners highlighted issues with respect to the information received, such as high rates of missing dates of birth and missing or invalid TINs.
Based on these findings it was concluded that the Cook Islands is not meeting expectations in ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures. More specifically, fundamental issues have been identified, including with respect to the planning and implementation of effective verification and enforcement mechanisms to address non-compliance. The Cook Islands should therefore continue its implementation process accordingly, including by addressing the recommendations made.
The Cook Islands should develop and implement an overarching compliance strategy, based on a systematic risk assessment, for all aspects of compliance with the AEOI Standard.
The Cook Islands should develop and implement appropriate verification activities to monitor and enforce Reporting Financial Institutions’ compliance with the AEOI Standard, including actively monitoring the interaction between its AML framework and its CRS framework to ensure that the collection and reporting of information is always in accordance with the AEOI Standard.
The Cook Islands should implement systems to collect and monitor information, including on the reporting of Tax Identification Numbers, dates of birth and undocumented accounts, to inform its compliance strategy.
The Cook Islands should put in place a clearly defined policy that, where circumvention is identified, action is taken to address it.
The Cook Islands should develop and implement administrative procedures to enable effective enforcement and appropriate sanctions when non-compliance is detected.
The Cook Islands should ensure that it consistently monitors and verifies that self-certifications have been obtained as required, including as part of a “day two” procedure under the circumstances permitted by the AEOI Standard.
The Cook Islands should follow up with Reporting Financial Institutions that report undocumented accounts, including ensuring that these are only reported in the circumstances described in the AEOI Standard.
The Cook Islands should address the issues raised by its exchange partners.
SR 1.6 Jurisdictions should collaborate on compliance and enforcement. This requires jurisdictions to:
use all appropriate measures available under the jurisdiction’s domestic law to address errors or non-compliance notified to the jurisdiction by an exchange partner; and
have in place effective procedures to notify an exchange partner of errors that may have led to incomplete or incorrect information reporting or non-compliance with the due diligence or reporting procedures by a Reporting Financial Institution in the jurisdiction of the exchange partner.
In order to collaborate on compliance and enforcement, it appears that the Cook Islands implemented all of the requirements in relation to issues notified to them (i.e. under Section 4 of the MCAA or equivalent) in accordance with expectations. While no such notifications have yet been received, the Cook Islands has the necessary systems and procedures to process them as required. The Cook Islands has an understanding of the need to inform exchange partners of errors or non-compliance by a Reporting Financial Institution in the jurisdiction of an exchange partner and is developing procedures to do this.
Based on these findings it was concluded that the Cook Islands is fully meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures. The Cook Islands is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
CR2 Effectiveness in practice: Jurisdictions should exchange the information effectively in practice, in a timely manner, including by sorting, preparing, validating and transmitting it in accordance with the AEOI Standard.
The Cook Islands’ implementation of the AEOI Standard is on track with respect to exchanging the information effectively in practice, including in relation to sorting, preparing and validating the information (SR 2.4), correctly transmitting the information in a timely manner (SRs 2.5 – 2.8) and providing corrections, amendments or additions to the information (SR 2.9). The Cook Islands is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).
Feedback from the Cook Islands’ exchange partners did not raise any specific concerns with respect to their ability to process the information received from the Cook Islands and therefore with respect to the Cook Islands’ implementation of these requirements. More generally, two exchange partners (representing 3% of its partners) reported rejecting more than 50% of files received, due to the technical requirements not being met. This is broadly in line with the general experience of other jurisdictions. It was noted that the Cook Islands has already successfully addressed all of the issues.
Based on these findings it was concluded that the Cook Islands is fully meeting expectations in relation to sorting, preparing and validating the information. The Cook Islands is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.5 Jurisdictions should agree and use, with each exchange partner, transmission methods that meet appropriate minimum standards to ensure the confidentiality and integrity of the data throughout the transmission, including its encryption to a minimum secure standard.
In order to put in place an agreed transmission method that meets appropriate minimum standards in confidentiality, integrity of the data and encryption for use with each of its exchange partners, the Cook Islands linked to the CTS.
Based on these findings it was concluded that the Cook Islands is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. The Cook Islands is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.6 Jurisdictions should carry out all exchanges annually within nine months of the end of the calendar year to which the information relates.
Feedback from the Cook Islands’ exchange partners did not raise any concerns with respect to the timeliness of the exchanges by the Cook Islands and therefore with respect to the Cook Islands’ implementation of this requirement.
Based on these findings it was concluded that the Cook Islands is fully meeting expectations in relation to exchanging the information in a timely manner. The Cook Islands is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.7 Jurisdictions should send the information in accordance with the agreed transmission methods and encryption standards.
Feedback from the Cook Islands’ exchange partners did not raise any concerns with respect to the Cook Islands’ use of the agreed transmission methods and therefore with the Cook Islands’ implementation of this requirement.
Based on these findings it was concluded that the Cook Islands is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. The Cook Islands is therefore encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.8 Jurisdictions should have the systems in place to receive information and, once it has been received, should send a status message to the sending jurisdictions in accordance with the CRS Status Message XML Schema and the related User Guide.
Two exchange partners highlighted delays in the sending of status messages by the Cook Islands, representing 3% of its partners. It was noted that the Cook Islands appears to be successfully addressing the issues to ensure that status messages are sent in accordance with the requirements.
Based on these findings it was concluded that the Cook Islands is fully meeting expectations in relation to the receipt of the information. The Cook Islands is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.9 Jurisdictions should respond to a notification from an exchange partner as referred to in Section 4 of the Model CAA (which may include Status Messages) in accordance with the timelines set out in the Commentary to Section 4 of the Model CAA. In all other cases, jurisdictions should send corrected, amended or additional information received from a Reporting Financial Institution as soon as possible after it has been received.
The Cook Islands appears ready to respond to notifications and to provide corrected, amended or additional information in a timely manner and no such concerns were raised by the Cook Islands exchange partners and therefore with respect to the Cook Islands’ implementation of these requirements.
Based on these findings it was concluded that the Cook Islands appears to be meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended or additional information. The Cook Islands is encouraged to continue to ensure the ongoing effectiveness of its implementation.
Assessed jurisdiction’s comments on the assessment of effectiveness in practice
Comments made by the Cook Islands (30 June 2022)
[1a] planning for the future started.
The tax authority has secured a budget for implementing a compliance module and the detailed specification and procurement process is under way, it is anticipated that the compliance module will be implemented by the end of 2022 through beginning of 2023. Specifications and the procurement process have started with a due date of for end of September for selection of a solution.
[1b] activities occurred between 31 March and 30 June.
With assistance from PFTAC technical assistance the Cook Islands has developed the following documentation
AEOI Compliance Strategy: that describes how the Cook Islands will carry out end-to-end EOI activities incorporating the legislative framework, self-help services to FIs, implementing a risk and compliance framework, enforcement actions and making effective use of EOI information.
CRS Compliance Verification Plan: shows the yearly cycle, identifies data to be verified and reviewed and the teams responsible for carrying out the review and the expected outcomes.
CRS Due Diligence Checklist Questionnaire: a pre-reporting self-assessment checklist serving as a reminder to FI of the requirements and references to the regulations and rules. The responses will be used to identify further education and guidance that may be required by FI, assist in assessing any non-compliance and rank FI in terms of their compliance behaviour.
CRS Due Diligence Full Review Checklist (in draft): used for conducting a full review undertaken by the audit team on cases requiring further investigation.
EOI Process Manual (in draft) a standard operating procedure manual for tax authority staff.
On 2 May the tax authority ran a seminar introducing the new CRS Due Diligence Checklist that is required to be completed by reporting FI on completion of their CRS Reports.
The tax authority also presented statistics on areas that need improvement with the data quality and that the checklist be used to ensure CRS due diligence procedures are in place so that key information is in place before it is reported to the tax authority. A number of these checklists have been returned (the remainder expected around 30 June) and now become a record of the self-assessed positions taken by RFIs on matters of due diligence procedures and data quality and completeness (or otherwise).
The tax authority has started post-reporting checks by comparing the CRS Reporting checklists with an analysis of the CRS Reports received, the purpose is to identify and flag any further investigation required.