By Sir Ronald Sanders

SMALL states, including those in the Caribbean, are justifiably troubled by the continuous efforts by the member states of the Organization for Economic Co-operation and Development (OECD) to cripple every initiative they take in the financial services sector.

Indeed, it is true to say the OECD has become as intimidating and odious an acronym as the IMF was in the 1970s and 1980s.

Under the guise of stopping financing of terrorism and money laundering, the OECD has extended its reach in to sovereign states that strangle their rights and stifles their efforts in almost every area of finance and banking.

Picking-off these small states, one after the other, the OECD has effectively imposed its will on all of them, so much so that when governments acquiesce to the demands of the OECD or the Commission of the European Union (whose members constitute most of the membership of the OECD), their representatives claim it as a victory.

More than one Caribbean government has trumpeted their signing-up to the OECD or EU Commission demands as some sort of virtue while, indeed, they agree to remove all incentives from international business corporations, causing them to shut down, and, thus, depriving their countries of desperately needed revenues.

There has been – and sadly remains – a lack of solidarity among all the affected countries. So, there is no effort to pool their intellectual knowledge and experience to create a solid negotiating position which they could jointly adopt with the OECD. Even in the OECD Global Forum, which is dominated by the OECD countries with the nominal participation of small states, there is no effort by the small jurisdictions to develop a single position and to adopt a joint negotiating strategy.

Now, the OECD is going after “residency” programmes and “Citizenship by Investment Programmes (CIPs)” in the Caribbean and elsewhere.

This new assault will affect half the member-states of the Caribbean Community (CARICOM). Antigua and Barbuda, Dominica, Grenada, St Kitts and Nevis, and St Lucia operate CIPs, and The Bahamas and Barbados have residency-by-investment (RBI) programmes.

On February 19, the OECD issued a “consultation document” on preventing the abuse of residence by investment schemes to circumvent reporting on the financial assets of their nationals.

Despite the fact that thousands of people subscribe to these programmes for legitimate reasons, the OECD argument is the programmes could create opportunities for tax evaders.

The OECD is now soliciting public information to get evidence on the misuse of the CBI/RBI schemes and on effective ways for preventing such abuse. They will get organised testimony from organisations that are dedicated to high taxation. The stage is already set for a conclusion that the CBI/RBI programmes are porous for tax evasion and other forms of financial crime, and, therefore, the OECD should require jurisdictions to discontinue them or face “counter measures”.

The paper can be read in full at https://www.oecd.org/tax/exchange-of-tax-information/consultation-document-preventing-abuse-of-residence-by-investment-schemes.pdf

Consultation document - Preventing abuse of residence by ...

www.oecd.org

PREVENTING ABUSE OF RESIDENCE BY INVESTMENT SCHEMES TO CIRCUMVENT THE CRS

More and more jurisdictions are offering “residence by investment” (RBI) or

It is written in OECD-speak; usually, the terms mean the opposite of common usage. In effect, it argues that RBI/CBI programmes are high risk where, among other things, the following applies: the scheme imposes no or limited requirements to be physically present in the jurisdiction or no checks are done as to the physical presence in the jurisdiction; the scheme is offered by either: low/no tax jurisdictions, jurisdictions exempting foreign source income; jurisdictions with a special tax regime for foreign individuals that have obtained residence through such schemes;

The OECD is presently collecting a list of high risk schemes as it regards them. At the end of the exercise, Caribbean jurisdictions are bound to be included in the list.

So, what is to be done. It should be recalled that the majority of CARICOM countries (and certainly those that have CBI/RBI programmes) have tax information exchange agreements with many if not all OECD countries; they also have mutual legal assistance treaties and many of them subscribe to the OECD’s common reporting standards (CRS) which obliges them to report on the financial assets of foreigners.

The OECD now believes that, notwithstanding all these arrangements, the CBI/RBI programmes can be used to evade paying tax due to its member-states.

Caribbean jurisdictions, which would also include Cayman Islands, should seek to engage jointly countries such as Portugal, Italy, the United Kingdom, Cyprus and Malta (all of which are EU countries) that also operate CBI/RBI programmes to try to forge common cause in bargaining with the OECD (of which the UK is also a member).

The Caribbean countries should also prepare a joint and robust response to the OECD and engage the organisation at the highest possible political and technical level.

That response should include all the safeguards that could reasonably be expected, including thorough and vigorous vetting of all persons who are approved for the CBI/RBI programmes; mechanisms for ensuring that such persons are not evading taxes due in OECD countries; resisting the wrongful notion that tax avoidance is a crime commensurate with tax evasion; and insisting that OECD countries that have not signed-up to the CRS to do so as a pre-condition for any further Caribbean action.

If there is not such a robust, joint response that halts the OECD juggernaut, the Caribbean’s CBI/RBI programmes will be wiped-out within the next three years, sinking yet another initiative by small countries to survive economically.

And, if it is that these programmes cause such alarm among the OECD countries, they should put on the table tangible and meaningful machinery by which they will help small jurisdictions to overcome the loss of revenues, jobs and economic growth that will result from the crushing of their CBI/RBI programmes.

Turning the other cheek is not an option for Caribbean economies, nor is deferring the problem to a later date when they will already be consumed.

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The writer is Antigua and Barbuda’s Ambassador to the US and the OAS. He is also a senior fellow at the Institute of Commonwealth Studies at the University of London and at Massey College in the University of Toronto. The views expressed are his own.