You received a self-certification from a new client that looks reasonable on its face but is it? Have you considered whether the client is participating in a potentially high-risk CBI/RBI scheme?
The OECD’s Common Reporting Standard (CRS) includes a rule known as the “anti-avoidance rule.” The anti-avoidance rule is one piece of the overall CRS approach to achieving global tax transparency. The rule directs jurisdictions to develop general or specific rules within their implementation legislation and regulations with the goal of limiting opportunities for taxpayers to circumvent CRS due diligence and reporting.
CBI / RBI Schemes
Some jurisdictions offer "Citizenship by Investment" (CBI) and "Residence by Investment" (RBI) schemes. Such schemes allow a foreign individual to obtain low personal income tax rates on offshore financial assets without having to spend a significant amount of time in the jurisdiction. The foreign individuals are able to obtain citizenship, temporary residence rights or permanent residence rights on the basis of local investments or by paying a fee.
By setting themselves up as a tax resident of the CBI/RBI jurisdiction, the individual can undermine the CRS due diligence procedures. The individual might incorrectly disclose his tax residence to a Financial Institution (FI) as solely that of the CBI/RBI jurisdiction despite not residing in that jurisdiction. The result: inaccurate or incomplete CRS reporting.
FI Due Diligence
When the FI receives supporting documentation from the client which was issued under the CBI/RBI scheme (e.g., certificate of residence, ID card or passport), the FI must validate the documentation. However, the normal validation process may not be sufficient. FIs must be stay on top of the OECD's analysis of CBI/RBI schemes.
Based on the facts and circumstances, the FI may have doubts regarding the client’s tax residence. If the FI’s concern is based on the client’s claim of residence in a CBI/RBI jurisdiction, the OECD has recommended that the FI consider asking the following questions:
Did you obtain residence rights under a CBI/RBI scheme?
Do you hold residence rights in any other jurisdiction(s)?
Have you spent more than 90 days in any other jurisdiction(s) during the previous year?
In which jurisdiction(s) have you filed personal income tax returns during the previous year?
OECD Designated CBI/RBI Schemes
The following are schemes that the OECD has designated as CBI/RBI schemes – but currently not high-risk CBI/RBI schemes:
High-Risk CBI/RBI Schemes
The OECD considers a CBI/RBI scheme to pose a potentially high risk if it:
Currently, the OECD has designated the following schemes as high risk:
It is possible that your existing due diligence / validation processes adequately cover issues related to CBI/RBI schemes. In addition to confirming the issues are currently covered in your policies and processes, you should maintain updated CBI/RBI jurisdiction lists which are readily accessible to staff. The topic should also be covered in ongoing staff training.
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