On 16 October 2018, the OECD published the results of its analysis of over 100 Citizenship by Investment (CBI) and Residence by Investment (RBI) schemes that allow foreign individuals to obtain citizenship or residence rights. The OECD performed the analysis because it had concluded that the Automatic Exchange of Information (AEoI, CRS) can be circumvented by taxpayers that are declaring a fictitious tax residence to financial institutions.

According to the OECD, potentially high-risk CBI/RBI 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. Such schemes, according to OECD research, are currently operated by Antigua and Barbuda, The Bahamas, Bahrain, Barbados, Cyprus, Dominica, Grenada, Malaysia, Malta, Panama, Qatar, Saint Kitts and Nevis, Saint Lucia, Seychelles, Turks and Caicos Islands, United Arab Emirates and Vanuatu (as of 22 October 2018).

Together with the results of the analysis, the OECD has also published FAQs that will enable financial institutions to identify and prevent CRS avoidance through the use of such schemes. In particular, the OECD expects that financial institutions consider raising further questions if a client is resident in one of the above mentioned countries:

• Did the client obtain residence rights under a CBI/RBI scheme?
• Does the client hold residence rights in any other jurisdiction(s)?
• Did the client spend more than 90 days in any other jurisdiction(s) during the previous year?
• In which jurisdiction(s) has the client filed personal income tax returns during the previous year?

The responses to the above questions should assist financial institutions in ascertaining whether the provided AEoI self-certification is incorrect or unreliable.

This OECD initiative has an impact on financial institutions as well as the countries that offer residence permits based on investments.

• For financial institutions, this will mean that they will have to investigate more carefully whether the self-declared tax residence is indeed correct. This especially applies when a client is resident in one of the above mentioned countries.
• Countries will be under pressure to reconsider their frameworks and start issuing tax residence certificates, only for the individuals who are actually “living” in the respective country.

As mentioned above, banks should already now ensure that the documented tax residence is the actual tax residence. It is not sufficient to solely rely on a tax residence certificate, if there are doubts that the client is actually living in the claimed country. Such a tax residence certificate does not confirm that the client is not (or no longer) tax resident in any other country.

Irrespective of this, countries have the option of directly targeting those who move away. In practice, we have already seen cases where the country of departure has demanded data on the emigrating taxpayer from the country of destination by means of administrative assistance.