As published on prnewswire.co.uk, Monday 18th March, 2019.
A report, prepared by multinational accounting firm Ernst & Young (EY) and published last Tuesday, concludes that Dominica's Citizenship by Investment Programme does not facilitate tax avoidance and evasion. The report notes that the Programme, by its very nature, awards citizenship, and that citizenship is not the basis on which a person's obligation to pay taxes rests. Rather, the obligation to pay taxes revolves around 'tax residency', – a concept "often built around the degree of personal socio-economic links with a country."
The OECD Model Convention provides four main tests for determining tax residence: having physical presence for a minimum amount of time; having a permanent home available; having a close centre of vital interests; and having a habitual abode in the sense of being customarily or usually present. According to EY, it looks to citizenship only if "none of the previous residence tests are enough to determine the country of tax residence."
In becoming citizens of Dominica, persons who applied under the Programme do not automatically become tax residents. Instead, as evinced in EY's report, they must make a showing of physical presence by either having a "permanent place of abode" and being "physically present in Dominica for at least some part of the year of income," spending "not less than 183 days in Dominica during a year of income," or spending "some period of time in Dominica during a year of income, but spen[ding] a continuous period of not less than 183 days in Dominica between income years." Citizenship is excluded from Dominica's tests for tax residency.
Because Dominican citizenship is separate from Dominican tax residency, citizenship by investment (CBI) does not enable circumvention of taxation reporting systems such as the CRS, which are based on a person's tax residency. The report affirms this first by indicating that "the [CRS] reporting rules are explicit in not using citizenship as a test," and second by emphasising that "concerns over the scope for CBI to facilitate tax avoidance and evasion therefore seem to be based on weaknesses in the tax implementation rather than a feature of CBI programmes themselves."
The report recommends care in ensuring "that the rules for tax reporting are properly understood by countries and financial institutions." With its focus on setting apart citizenship and tax residence, EY's report itself seems to be a robust step in this direction.
As a small island developing state, Dominica faces unique economic and geographic vulnerabilities that pose challenges to its growth. Citizenship by investment, formalised in the decades-old Programme, is a key method by which Dominica has reduced these vulnerabilities, found means by which to develop, and strengthened its commitments to a better future. The ambitious goal of becoming the "world's first climate resilient nation", formulated by Prime Minister Roosevelt Skerrit after the devastation brought by Hurricane Maria in 2017, is one such example. This is why the Government of Dominica is dedicated to the success and integrity of the Citizenship by Investment Programme, which includes ensuring it does not undermine common efforts to combat tax fraud.
In recent months, and to the Government's distress, the Citizenship by Investment Programme has come under fire by the OECD and the European Union as a potential tax avoidance scheme and as a safety concern. The Government has continuously sought to dispel such fears and it welcomes the EY report and the accuracy with which it has distinguished citizenship and tax residency.