Often referred to as 'golden passports', citizenship by investment and residence by investment schemes are offered by a number of jurisdictions. They allow foreign individuals to obtain citizenship or temporary or permanent residence rights on the basis of local investments or against a flat fee.
Although individuals may be interested in these schemes for a number of legitimate reasons, the OECD says that there is evidence that these schemes are being used to circumvent reporting under the Common Reporting Standard (CRS).
CRS is a way for countries to automatically exchange information about non-residents holding bank accounts and other financial accounts offshore in order to crack down on the use of offshore jurisdictions to facilitate tax evasion. Over 100 jurisdictions have agreed to make annual exchanges of information under CRS.
Financial institutions are obliged to carry out due diligence on account holders. This includes the account holder self certifying their residence status and providing documentary evidence.
The OECD said that identity cards, residence permits and other documentation obtained through citizenship or residence by investment schemes can potentially be abused to misrepresent an individual’s jurisdiction of tax residence and to endanger the proper operation of the CRS due diligence procedures.
"Banks and trust companies need to be aware of the OECD's latest guidance and factor it into their CRS processes to help spot 'flaky' claims to residence," said Jason Collins, a tax expert at Pinsent Masons, the law firm behind Out-Law.com.
The OECD says that potentially high-risk schemes are those that give access to a low personal tax rate on income from foreign financial assets and do not require an individual to spend a significant amount of time in the jurisdiction offering the scheme.
It says that potentially high risk schemes are currently operated by Antigua and Barbuda, The Bahamas, Bahrain, Barbados, Colombia, Cyprus, Dominica, Grenada, Malaysia, Malta, Mauritius, Montserrat, Panama, Qatar, Saint Kitts and Nevis, Saint Lucia, Seychelles, Turks and Caicos Islands, United Arab Emirates and Vanuatu. Monaco was originally listed but was removed after providing additional information to the OECD.
CRS rules provide that a financial institution may not rely on a self-certification or documentary evidence if it knows or has reason to know, that the self-certification or documentary evidence is incorrect or unreliable.
The OECD guidance states that if there is doubt about the residence status because the account holder or controlling person is claiming residence in a jurisdiction offering a potentially high-risk scheme, financial institutions should consider raising further questions. These include whether the residence rights were obtained under a residence by investment scheme, whether the individual holds residence rights in any other jurisdictions, whether the individual has spent more than 90 days in any other jurisdictions during the previous year and in which jurisdiction the individual has filed personal income tax returns during the previous year.
In a recent OECD webcast Pascal Saint-Amans, Director of the OECD Centre for policy and tax administration, confirmed that on 30 September over 100 countries started automatic exchange of information under CRS. He confirmed that although some countries were slightly late with their exchanges, countries that had typically had secrecy around banking information such as Switzerland and Singapore had provided information on time.