UK and International Tax news

OECD Addresses Abuse Of Residence By Investment Schemes To Circumvent The CRS

Thursday 26th April 2018

The OECD has recently issued an update on its assessment of jurisdictions which offer ‘residence by investment’ or ‘citizenship by investment’ schemes which can be used to circumvent reporting under the Common Reporting Standard.

Such RBI/CBI schemes do not offer a solution for escaping the legal scope of reporting pursuant to the CRS but grant a right of citizenship of a jurisdiction or a right to reside in a jurisdiction but not general tax residence.

Reporting under the CRS is based on tax residence, not on citizenship or the legal right to reside in a jurisdiction. Even where tax residence can be obtained through some RBI schemes, they do not by themselves affect the tax residence in the original country of residence of the individual. The CRS requires taxpayers to self certify all their jurisdictions of residence for tax purposes.

Over the last few months, the OECD has been taking a set of actions to ensure that all taxpayers maintaining financial assets abroad are effectively reported under the CRS, including by:

  • issuing new model disclosure rules that require lawyers, accountants, financial advisors, banks and other service providers to inform tax authorities of any schemes they put in place for their clients to avoid reporting under the CRS. The adoption of such model mandatory disclosure rules is expected to have a deterrent effect on the promotion of CBI/RBI schemes for circumventing the CRS and provide tax authorities with intelligence on the misuse of such schemes as CRS avoidance arrangements. EU member states have already agreed to implement these rules as part of a wider directive on mandatory disclosures;
  • reaching out to individual jurisdictions, including Malta, to make them aware of the risk of abuse of their CBI/RBI schemes and offer assistance in adopting mitigating measures; and
  • establishing a list of high risk schemes in order to further raise awareness amongst stakeholders of the potential of such schemes to undermine the CRS due diligence and reporting requirements.

On 19 February 2018, the OECD issued a conmsultation document outlining potential situations where the misuse of CBI/RBI schemes poses a high risk to accurate CRS reporting and sought public input and evidence on the misuse of CBI/RBI schemes and on effective ways for preventing such abuse.

The consultation also contained a wide range of proposals for further addressing the misuse of RBI/CBI schemes, including:

(i) comprehensive due diligence checks to be carried out as part of the RBI/CBI application process,

(ii) the spontaneous exchange of information about individuals that have obtained residence/citizenship through such a CBI/RBI scheme with their original jurisdictions of tax residence; and

(iii) strengthened CRS due diligence procedures on financial institutions with respect to high risk accounts.

The OECD will be addressing the issue further when experts from OECD and G20 countries meet in Paris in May to elaborate on actions to effectively address the misuse of CBI/RBI schemes.

 

If you would like further information on the above, please contact Keith Rushen on 0207 486 2378.

Contact Us