Accounting Firm Report Says Dominica CBI Programme Does Not Facilitate Tax Evasion

The Dominca’s citizenship by investment (CBI) programme does not facilitate tax evasion and avoidance says a report prepared by multinational accounting firm Ernst and Young, which was published on Tuesday.

The report noted that the programme, awards citizenship and that citizenship is not the basis on which a person’s obligation to pay taxes rests. Instead, the obligation to pay taxes revolves around ‘tax residency’, – a concept “often built around the degree of personal socio-economic links with a country.”

There are four main tests for determining tax residence under the OECD Model Convention: having a 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 Ernst and Young, it looks to citizenship only if “none of the previous residence tests are enough to determine the country of tax residence.”

The persons who applied under the CBI programme to become a citizen of Dominica 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 spending 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, CBI does not enable circumvention of tax 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 countries and financial institutions properly understand the rules for tax reporting.” 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. CBI, formalised in the decades-old programme, is a crucial 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 CBI programme, which includes ensuring it does not undermine joint efforts to combat tax fraud.

In recent months, and to the government’s distress, the CBI 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.

published: 23 March 2019

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