IMC to OECD: Singling out RCBI-Countries “Makes No Sense and Cannot be Justified”

In a public response to the OECD’s “blacklisting” of jurisdictions with residence and citizenship by investment programs for alleged circumvention of the Common Reporting Standard (CRS), the Investment Migration Council writes that while they sympathize with many of the OECD’s motivations, tax and investment migration are two separate legal concepts that ought not to be conflated.

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The IMC’s response is reprinted in full below:

The Investment Migration Council Responds to the Analysis and Guidance Issued by the OECD on Residence-/Citizenship-by-Investment Programmes

The Investment Migration Council (IMC) understands the motivation behind the OECD’s recent analysis and guidance regarding the purported circumvention of the Common Reporting Standard (CRS) in both residence-by-investment (RBI) and citizenship-by-investment (CBI) programmes.

We entirely agree that individuals should be stopped from using such programmes to avoid accurate CRS reporting or, even worse, to engage in financial crimes, including money laundering or terrorist financing. The IMC as well as the firms and governments that the IMC represents does not support any form of abuse of investment migration.

However, it is important to be clear about four important facts:

• Only a very small percentage of residence or citizenship statuses legitimately obtained through RBI or CBI programmes are at issue. For the vast majority of applicants seeking alternative residence or citizenship through these programmes, tax is not in fact an issue, as most applicants either do not in fact change their tax residence or move completely to their new place of residence and then are tax residents there.
• Within the European Union, the European Economic Area and Switzerland, the freedom of establishment means that any citizen of these European countries can freely move to any other one of these countries and does not have to use any of the RBI or CBI programmes to establish their tax residence there. The movement of EU citizens actually accounts for a large part of the global movement of individuals for tax purposes. It seems strange not to look at appropriate statistics to assess what proportion of taxpayers subject to CRS are, in fact, under any RBI/CBI programmes.
• RBI/CBI programmes are only a fraction of the immigration options available to individuals. Most residence permits and citizenships are in fact obtained under options other than investment migration programmes. For example, while in Europe on average about 800 citizenships are granted annually under CBI provisions (mainly in Austria, Cyprus and Malta), the 28 member states of the European Union grant nearly one million citizenships every year for other reasons, including ancestry, residence, special merit, marriage, etc. All of these can be equally used or abused for circumventing CRS, while citizenships obtained through EU CBI programmes account for less than 0.1% of all the citizenships granted in the EU. It would be good to understand what is being done to assess the risk, and to take appropriate measures, with regard to potential CRS abuse under other immigration and citizenship options.
• Of those nearly one million citizenships granted by the EU each year (and a similar number in North America), among the top non-EU origin countries are many high-risk nationalities, and in far greater numbers than through CBI programmes. These include Pakistan, Ukraine, Algeria, Russia, Nigeria, and Somalia, which pose a much more real danger to the international community in terms of criminal activity in the financial system, including money laundering and terrorist financing, which in our opinion should be the main focus of enhanced due diligence by financial institutions.

The abuse of CRS is contrary to the strategic rationale for and specific design of all RBI and CBI programmes and no doubt should be stopped. The IMC fully supports all efforts to achieve this. However, we do not support the OECD’s apparent solution to the challenge, as the issue is not these programmes per se. Neither RBI nor CBI programmes have a direct connection with tax residence. These are fundamentally different legal concepts.

RBI and CBI programmes are designed to facilitate – following a detailed and intensive due diligence process that goes far beyond other forms of granting residence or citizenship rights – the legitimate movement of capital and people, which is essential to the contemporary global economic model.

The IMC urges the OECD to review and strengthen the CRS due diligence requirements for financial institutions in terms of the tax residence aspects of clients, but not with a sole focus on RBI/CBI programmes, as this makes no sense and cannot be justified by any means other than a direct intent to hurt specific countries, including many OECD member states.

Read our full response and key recommendations to the OECD on Residence-/Citizenship-by-Investment programmes here.