Citizenship-by-investment schemes, which are becoming increasingly popular in many parts of the world as a means of encouraging inward investment by high-net-worth foreigners, “can offer a backdoor to money-launderers and tax evaders”, according to the Organisation for Economic Cooperation and Development.
The Paris-based OECD, which is overseeing the global move towards automatic disclosure of information known as the Common Reporting Standard, whereby some 98 countries have agreed to disclose tax-relevant information among themselves, yesterday published a consultation document on the potentional misuse of these citizenship-by-investment schemes as part of what it calls its “CRS loophole strategy”.
The seven-page consultation document details how citizenship-by-investment schemes can potentially be exploited to evade the CRS due diligence procedures; “reminds stakeholders of the importance of correctly appying relevant CRS due diligence procedures in order to help prevent such abuse”; and what measures might be used to ensure that this doesn’t happen, while still permitting such schemes to remain in place.
“Citizenship-by-investment/residence by investment schemes can potentially be exploited to help undermine the CRS due diligence procedures”, the OECD consultation notes.
“This may lead to inaccurate or incomplete reporting under the CRS, in particular when not all jurisdictions are disclosed to the reporting financial institution.
“Such a scenario could arise where an individual does not actually reside in the relevant jurisdiction, but claims to be resident [there] for tax purposes only, and provides his financial institution with supporting documentary evidence (eg certificate of residence; ID card; passport; utility bill of second house).”
The consultation closes on 19 March.
Among the countries that have well-established citizenship-by-investment schemes are Cyprus, Malta, St Kitts and Nevis, the US, UK, Australia, France, Greece, Hungary, Portugal, Spain, Latvia, Antigua and Barbuda and Dominica.