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CS Global Partners: EY Says Citizenship is Independent of Tax Residency


The CBI Index has published a report compiled by top global tax advisors Ernst & Young (EY) that provides important insight on the distinction between citizenship and tax residency and debunks the myth that citizenship by investment (CBI) programmes, such as those operated by the Commonwealth of Dominica and St Kitts and Nevis, pose a risk to tax reporting.

Following an in-depth analysis, EY concludes that: (1) citizenship and tax residency are “distinct” concepts; (2) CBI programmes do not themselves facilitate tax evasion and incorrect reporting under the CRS; and (3) citizenship is not relevant to obtaining tax residency in Dominica, St Kitts and Nevis, or St Lucia,

These findings are significant, as they counter recent criticisms of CBI programmes made by bodies such as the OECD and the European Commission, which are largely based on the mistaken view that CBI programmes are, for all intents and purposes, vehicles for obtaining a new tax residency status.

EY surveys historical precedent and model international conventions to conclude that tax residency, as a concept, is “separate to that of citizenship.” Tax residency, it says, is “often built around the degree of personal socioeconomic links with a country,” and that a majority of tests, including those in the OECD Model Tax Convention, look to physical presence, a permanent home, a habitual abode, or a centre of vital interests to determine tax residency. “[R]eference to citizenship,” instead, “is rarely used as a tie-breaker in relation to residence.”

The report highlights CBI as an industry where the concept of tax benefits, tax residency, and citizenship are commonly – and erroneously – associated. Countries may offer both tax incentives and CBI options, but the two are separate. Indeed, the more common reasons for applying for citizenship are listed as political security, increased travel prospects, lifestyle advantages, and escape from prejudice.

The report finds support in the words of the OECD, which, in February 2018 said that CBI schemes “generally do not provide tax residence,” and of the European Commission, which, in January 2019, said “the use of these schemes does not equate to tax evasion.”

With respect to reporting tax information under the CRS, EY concludes that “citizenship should not give rise to tax avoidance and evasion opportunities, as the reporting rules [under the CRS] are explicit in not using citizenship as a test.” Per the CRS Implementation Handbook, “US specificities (such as the use of citizenship as an indicia of tax residence) […]” were removed from the CRS.

Caribbean CBI jurisdictions Dominica and St Kitts and Nevis are cited in EY’s report to illustrate how tax residency cannot be accessed by the mere fact of citizenship. In Dominica, the report shows that time spent on the island – not citizenship – is the rationale on which tax residency is based. In St Kitts and Nevis, a temporary resident is distinguished from a resident (who may be liable to certain tax) on the basis of periods spent in the Federation and purpose of stay. Of the Caribbean generally, EY says: “Whilst it may very well be common for a person to be a citizen (whether by birth or naturalisation) of the same jurisdiction in which he is resident, it is clear that citizenship is not a relevant determinant of [tax] residence […].”

In releasing its report, EY has provided much-needed commentary on the distinction between citizenship and tax residency, and, by consequence, on the independence of citizenship by investment from tax-related activities, such as reporting under the CRS.

Access the EY report here.

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Thomas Kohn

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