An OECD publication (‘OECD clamps down on CRS avoidance through RCBI schemes’, October 16) homes in on the possibility of depositors misrepresenting their country of tax residence to their bankers for the purpose of circumventing established CRS (Common Reporting Standard) rules for exchange of information in relation to foreign assets.
The report lists a number of countries that grant RCBI (Residency or Citizenship By Investment) whose travel documents may be misused for this purpose.
It also gives what it considers to be the main reasons for obtaining citizenship and residency by investment. The “legitimate reasons include the wish to start a new business in the jurisdiction, greater mobility thanks to visa-free travel, better education and job opportunities for children, or the right to live in a country with political stability.”
This statement has been received as an important step in recognising the importance of the RCBI industry in providing legitimate ways of improving lives and globalising the world’s citizens.
The report goes on to say that “residence and citizenship by investment schemes... can create the potential for misuse as tools to hide assets held abroad from reporting under the Common Reporting Standard... In particular, identity cards, residence permits… obtained through RCBI schemes can potentially be abused to misrepresent an individual’s jurisdiction(s) of tax residence and to endanger the proper operation of the CRS due diligence procedures”.
I fail to see the real danger here. It is already the responsibility of financial institutions to diligently implement CRS. Multinational banks have dealt with the world’s affluent for long enough to understand the mobile nature of the global citizen and that their clients often maintain homes in more than one country or continent. I’m sure that the mere presentation of an identity card will not be sufficient to derail banks in recording an account holder’s correct tax residence.
The citizenship programme does not automatically bestow tax residence status
I can confirm that in Malta and Cyprus, the main domiciles of my law firm, the investment migration programmes do not alone change the tax residence status of investors. In both countries, tax residence requires either 183 days of actual presence on the island or a strong connection with the country to justify it being considered the individual country of tax residence.
The Malta Individual Investor Programme (MIIP) is completely tax neutral and only has the effect of granting citizenship after the relevant residence and investment criteria are met. The citizenship programme does not automatically bestow tax residence status.
Like all other Maltese nationals and foreigners alike without distinction, beneficiaries of the MIIP who meet the requisite tax residency criteria in any given fiscal year are eligible for the grant of a tax residence certificate on following the appropriate procedure and after a thorough review by the Maltese tax authorities. Those who do not meet the requirements of tax residency do not qualify as tax residents in Malta, irrespective of their nationality or immigration status.
The Malta Residence Visa Programme is also completely tax neutral and only grants immigration rights, specifically the right of permanent residence in Malta. This does not automatically render new Maltese residents tax resident in Malta, nor entitle the beneficiaries to tax residence status. Such beneficiaries who meet the requisite tax residency criteria in any given fiscal year are eligible for the grant of a tax residence certificate on following the appropriate procedure and review by the tax authorities.
In the international context, a ‘black list’ is a list of countries that are in default of their obligations under international treaty law or some other principle in international law. Such countries remain on that black list until they demonstrate to the international community that they have rectified their defaults and returned to compliance with international law. This is not the case here.
The OECD report in question is not a black list. It identifies a risk (the use of identification documents to circumvent financial reporting obligations) and makes recommendations to financial institutions to mitigate this risk.
The report does not make any recommendations to the countries listed therein. Nor does it condemn any default by any country or any of the programmes but simply identifies the potentially high risk of abuse of such programmes.
All things created for good reason can be misused and the OECD does well to identify the risk and take risk-mitigation measures. We just need to ensure that such measures are not misconstrued as a fault on the part of countries listed in such reports.
Kenneth Camilleri is a tax and immigration partner at Chetcuti Cauchi Advocates.
This is a Times of Malta print opinion piece