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CITIZENSHIP BY INVESTMENT: Pascal Saint-Amans says the OECD is open to discussing the impact of CBI on the CRS.


Added on 27/06/2019

As published on finance.yahoo.com, Thursday 27th June, 2019.

 

The 2019 Caribbean Investment Summit, held in St Kitts and Nevis between 19 and 22 June, was a crucial event in the citizenship by investment calendar, not least because of its attendees' readiness to address common challenges and discuss potential solutions.

Among the Summit's most distinguished speakers was Pascal Saint-Amans, the Director for the Centre for Tax Policy and Administration at the Organisation for Economic Co-operation and Development (OECD). Mr Saint-Amans partook in the Summit via a video link, through which he was able to both deliver his thoughts on citizenship by investment and address questions from the audience.

Mr Saint-Amans said that citizenship by investment was of interest both to the OECD's Secretariat and its 36 member countries, particularly with regards to the OECD's mandate to promote tax transparency and the exchange of information through the Common Reporting Standard (CRS). He expressed concern that citizenship and residence by investment could be misused by individuals to undermine the CRS in cases where a country offers both a low personal income tax rate and a citizenship or residence programme that does not require extensive physical presence. He summarised this as a risk of a "divorce" between a person's actual and legal residence.

Mr Saint-Amans further clarified his concerns with an example: "I am a French resident […] and I want to buy a citizenship from St Kitts and Nevis, which is quite popular. So I will buy it but I may not be required to be much present in St Kitts and Nevis and I will not be taxed on my financial assets because there is no tax and as a result, there is the risk that when I go to Geneva to open a bank account, that I present my St Kitts citizenship and residence and [that], in that case, the information will be collected by the Swiss Government [and] sent to St Kitts which will just trash the information because it is not relevant to St Kitts and the French Government will not get the information where it was entitled to get the information." The risk, he said, is "that the information [is] sent to the wrong country – meaning not the country where the person is actually taxable."

The premise of Mr Saint-Amans' clarification is that an individual who has obtained citizenship of St Kitts and Nevis can also demonstrate that he or she is a tax resident of St Kitts and Nevis. This, however, is not the case. Persons who obtain economic citizenship of St Kitts and Nevis simply obtain the status of 'citizen' – not 'tax resident' or 'resident.' They receive Certificates of Registration stating their name, their date and place of birth, and that they have been "registered as a citizen of Saint Christopher and Nevis in accordance with Saint Christopher and Nevis Citizenship Act, 1984." They can also apply for a passport, which, again, does not speak to their residence.

In March 2019, leading accounting firm Ernst & Young (EY) issued a report titled Tax residency: beyond citizenship – The role of citizenship in determining tax residency. In it, EY drew attention to the conceptual distinction between citizenship and tax residency, noting that the latter "does not naturally follow citizenship." EY further emphasised that citizenship, by the very terms of the CRS Implementation Handbook, should not be used as "an indicia of tax residence" and concluded that "citizenship should not give rise to tax avoidance and evasion opportunities, as the reporting rules are explicit in not using citizenship as a test."

With respect to how a person can become a tax resident of St Kitts and Nevis, rather than just a citizen, the EY report noted that "tax residence is generally guided by whether an individual has spent at least six months in an income year in Saint Kitts and Nevis and also whether the generally perceived permanent home or residence of an individual is in Saint Kitts and Nevis." A person may well be a citizen of St Kitts and Nevis, but it would take physical presence to establish tax residence therein.

At the Summit, Mr Saint-Amans was asked whether he was aware of the EY report, and why he thought the OECD's analysis conflicted with it. He responded that EY and the OECD are distinct entities that produce independent findings. He noted, however, that while the OECD had come to a set of conclusions, these were open to public commentary. "We don't set the public policies on private findings, we have our own findings, and again, as they are done through public consultation, each one of you has the opportunity to comment – to prove it's wrong – and of course, this would be adapted."