As published on caribbeannewsnow.com, Friday 19th April, 2019.
Taxation, says Smith and Williamson, a leading tax advisory firm headquartered in the UK, is generally related to a person’s tax residency, not citizenship: “Although an individual can have citizenship rights or residence rights in a number of different countries, usually only countries where an individual is resident for tax purposes can tax the individual’s worldwide income and gains.”
Whether a person is a tax resident of a country depends on that country’s specific rules. In the vast majority of countries, including Caribbean citizenship by investment (CBI) jurisdictions Antigua and Barbuda, Dominica, Grenada, St Kitts and Nevis, and Saint Lucia, tax residency is determined by a person’s centre of vital interests or domicile, i.e., the place wherein a person has a permanent intention to reside, as evidenced by past or current habitual residence.
It is “very rare” for citizenship alone to determine tax residency, with the most notable exception to this being the United States. “Therefore, merely obtaining citizenship of Saint Lucia, Dominica, or St Kitts and Nevis is not sufficient to make an individual a tax resident of these jurisdictions.”
With regards to reporting under the CRS, Smith and Williamson noted that this too is “based on tax residence and not on citizenship or the right to reside in a jurisdiction,” and, consequently that CBI programmes pose no risk to proper CRS reporting.
Smith and Williamson, the second firm to weigh in on the relationship between CBI and taxation, examined Double Taxation Agreements, or DTAs, which are treaties agreed between countries to prevent individuals who are tax resident in more than one jurisdiction being taxed on the same capital twice. DTAs contain “tie-breaker tests” to establish to which country a dual tax resident must pay tax. The United Nations offers a model DTA, under which the tie-breaker tests do “not consider citizenship at all.” Rather, they consider the person’s permanent home, centre of vital interests, and habitual abode. The OECD model similarly only considers citizenship as a last resort, if an individual has “failed all other tie-breaker.”
At a time when CBI is frequently misinterpreted, and CBI programmes are subjected to undue criticism, the research conducted by Smith and Williamson affords necessary insight into the meaning of citizenship and its independence from tax residency. Importantly, it affirms that, in providing citizenship and not tax residence, CBI programmes offer no assistance to those who would seek to avoid tax or proper tax reporting.
Smith and Williamson came to the same conclusions as those recently drawn by EY, adding further weight to calls for a re-evaluation of CBI programmes by those international organisations who have primarily based their analysis on a misconception.