Tag Archives: OECD

Caribbean Citizenship/Residence by Investment Programmes among those deemed “high risk” by OECD

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Alicia Nicholls

UPDATED: The OECD has indicated that the list is not a blacklist.

A new threat to Caribbean countries’ citizenship and residency by investment programmes (CBI/RBI programmes) has emerged. Today the Paris-based think tank, the Organisation for Economic Cooperation and Development (OECD) published a ‘black list’ of sorts of CBI and RBI programmes that “potentially pose a high-risk to the integrity of the Common Reporting Standard”.

What are CBI/RBI programmes?

Citizenship by investment programmes and residence by investment programmes provide citizenship (in the case of the former) or residency (in the case of the latter) to an investor (and often his or her dependents) in exchange for that investor making a significant investment in the host country, subject to that jurisdiction’s eligibility criteria.

St. Kitts & Nevis operates the oldest CBI programme in the world. As part of their efforts to diversify and attract much needed foreign direct investment, four other Caribbean countries (Antigua & Barbuda, Dominica Grenada and St. Lucia) have since adopted their own programmes.  The British Overseas Territory of Anguilla has also recently established an RBI programme. Outside of the Caribbean, there is now an ever-growing list of CBI or RBI programmes operated across the world.

OECD’s examination of CBI/RBI programmes

Earlier this year, the OECD announced that it would be examining the prevention of abuse of these programmes to circumvent the Common Reporting Standard (CRS).

Nicknamed Global FATCA because it was inspired by the US’ Foreign Account Tax Compliance Act (FATCA), the CRS is an information standard approved by the OECD Council in 2014 for the automatic exchange of information among tax authorities. CRS jurisdictions are required to obtain certain financial account information from their financial institutions and automatically share this information with other CRS jurisdictions on an annual basis.

The OECD has argued that CBI/RBI programmes are a risk to the CRS because they can be misused by persons to hide their assets offshore and because the documentation (such as ID cards) obtained through these programmes could be used to misrepresent an individual’s jurisdiction of tax residence.

The OECD used two vague criteria to determine whether a CBI/RBI programme was high risk to the CRS: (1) it gives access to a lower personal income tax rate on offshore financial assets and (2) it does not require an individual to spend a significant amount of time in the host jurisdiction.

Out of the 100 CBI/RBI programmes the OECD analysed, programmes from the following twenty-one jurisdictions were identified as high risk: Antigua & Barbuda, The Bahamas, Bahrain, Barbados, Colombia, Cyprus, Dominica, Grenada, Malaysia, Malta, Mauritius, Monaco, Montserrat, Panama, Qatar, Saint Kitts & Nevis, St. Lucia, Seychelles, Turks and Caicos, United Arab Emirates and Vanautu.

Caribbean Programmes Identified as ‘High Risk’

The following Caribbean CBI and RBI programmes were identified:

OECDCaribbeanCBIRBI

As a result, the OECD requires that financial institutions “take the outcome of the OECD’s analysis of high-risk CBI/RBI schemes into account when performing their CRS due diligence obligations”.

Why is this development of concern to the Caribbean?

This development is of concern to Caribbean countries which operate these programmes for several reasons. Firstly, it adds to the reputational backlash which Caribbean CBI  programmes have been facing, with implications for these programmes’ attractiveness to investors.  Caribbean CBI programmes are already facing competition not only inter se, but with other programmes around the world, including those in Europe which offer the prospect of free movement within the EU.

Secondly, this seeming blacklist, which is based on vague criteria, casts an unfair shadow on those countries which operate these programmes and may affect their attractiveness as jurisdictions for international business. Moreover, those countries which operate only RBI programmes , which have much less reputational risk, have also been painted with the same brush.

Thirdly, a reduction in CIP revenues would have an adverse economic impact on those countries which have come to depend on these revenues for their macroeconomic stability.

The results of the OECD’s analysis may be found here.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is an international trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

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OECD describes global trade growth as “exceptionally weak”

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Alicia Nicholls

In its Interim Economic Outlook released yesterday September 21, 2016, the Organisation for Economic Cooperation and Development (OECD) has again expressed concern about the slowdown in global trade growth, echoing similar sentiments made by the International Monetary Fund (IMF) and the World Trade Organisation (WTO). Describing global trade growth as “exceptionally weak”, the report notes that the volume of global trade fell in Q1 2016 and remains subdued despite some recovery in Q2.

The OECD noted that weak trade growth was as a result of not only cyclical and structural factors but also “some backtracking” on the opening of global markets to trade in goods and services. Noting that trade is an important driver of productivity growth, the organisation warned that this deceleration could undermine productivity growth and living standards in future years. These issues are further explored in an OECD Economic Policy Paper entitled “Cardiac Arrest or Dizzy Spell: Why is World Trade so weak and what can Policy do about it?” which was also released that same day.

The OECD report has reiterated the need for policy action to boost trade, including avoiding trade protectionist measures, reducing unnecessary trade costs and removing impediments and distortions for cross border investment. Recognising that support for globalisation in advanced economies has weakened, the report also suggests that policies be implemented to ensure that the benefits of trade and investment are widely shared.

This low trade growth is also affecting global GDP growth. The OECD warned that the world economy remains in a “low-growth” trap and projects global GDP growth to remain flat at only  3% in 2016, with only a modest improvement in 2017.

The full press release may be obtained here.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

OECD Trims Growth Forecast and Warns of Trade Deceleration in Latest Economic Outlook

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Alicia Nicholls

The Organisation for Economic Cooperation and Development (OECD) has again trimmed its global growth forecast slightly downward in its second economic outlook for the year, reflecting the weakness in Emerging Market Economies (EMEs). The Paris-based grouping predicts global GDP will expand by just 2.9% in 2015, down from 3% forecasted in its Interim Outlook this September. Eight years into the crisis this is the weakest growth since 2009. In its report, the OECD noted that the outlook for EMEs is “a key source of uncertainty at present given their large contribution to global trade and GDP growth”.

While the OECD predicts that global trade and output will recover in 2016/2017 assisted by stimulus measures in China, in his address at the launch of the report, OECD Secretary General, Jose Angel Gurria, emphasised that this improvement is dependent on a variety of factors, including “supportive macroeconomic policies, investment, continued low commodity prices for advanced economies and a steady improvement in the labour market”.

In anticipation of the COP21 UN Climate Change Conference in Paris, the OECD’s Economic Outlook report includes a chapter on climate change which calls for urgent action to address this global issue. In his address Secretary General Gurria stressed “we are on a collision course with nature and we have to change course” and urged that  “the fragility of economic recovery cannot be an excuse for policy inaction”.

Key points from the Report 

  • Global output is expected to grow by 2.9 percent in 2015 (weaker than the 3 percent predicted in the September Interim Outlook), with a modest upturn to 3.3 percent in 2016 (slower than the 3.6 percent forecasted in the September Interim Outlook), provided there is smoothening of the slowdown in China and stronger investment in advanced economies.
  • In contrast to 2011 and 2012 where EMEs were propelling global growth, lacklustre EME growth, including recessions in Brazil and Russia and a slowdown in China have negatively impacted global output and trade growth in 2015.
  • Global trade growth has slowed and is precariously close to levels usually associated with a global recession. Noting the link between trade and economic growth, the OECD pointed out that softening Chinese demand for imports is responsible in part not just for the deceleration of global trade but has negatively affected growth in economies which are linked to the Chinese economy. In its report, the OECD noted that “a more significant slowdown in Chinese domestic demand could hit financial market confidence and the growth prospects of many economies, including the advanced economies”.
  • Growth in the Chinese economy is projected to slow to 6.8 percent in 2015 (up slightly from 6.7 percent in the September forecast), 6.5 percent in 2016 and 6.2 percent in 2017 as the Chinese economy rebalances towards consumption and services activity.
  • Advanced economies remain resilient so far. The growth forecast for the United States economy is 2.4 percent in 2015, 2.5 percent in 2016 and 2.4 percent in 2017. Despite steady recovery in output and in employment, workers pay is still subdued. The OECD has expressed its belief that the time is ripe for the Federal Reserve to raise interest rates. This would be the first interest hike by the US central bank since the recession began.
  • Although recovery in the Eurozone is expected to strengthen, growth projections were downgraded from the September Interim Outlook. Eurozone countries are now expected to grow by 1.8 percent in 2016 and 1.9 percent in 2017 thanks to lower oil prices, accommodative monetary policy and an easing of budget tightening.
  • The refugee surge to the EU is expected to promote labour force growth and help offset the effect of an ageing population but this will depend on several factors, including the skill set of the refugees and current labour market conditions.
  • Unemployment in OECD countries is expected to fall but there will still be 39 million people out of work in OECD countries, six million more before the crisis started.
  • Trade and investment protectionism, inequality and productivity are problems which must be countered in order for growth to be achieved. There is also need for accelerating structural reforms.
  • A well-designed climate change policies can bring an improvement in short term outlook.
  • The OECD will release a policy note looking at the labour market and fiscal impact of the European refugee surge in advance of the G20 summit in Antalya.

The full report and presentations on the OECD Economic Outlook may be found here.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can read more of her commentaries and follow her on Twitter @LicyLaw.

Barbados hosts 8th meeting of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes

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Alicia Nicholls

On October 29-30th, Barbados hosted the 8th meeting of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes. Present at the meeting were 250 delegates from 88 jurisdictions and 11 international organisations and regional groups. Barbados is the second Caribbean country (after Bermuda) to have hosted a meeting of the Global Forum and is a Vice Chair of the Global Forum’s Steering Group.

The Global Forum is the leading multilateral forum on international cooperation on transparency and the exchange of tax and financial information. Comprising both OECD and non-OECD countries, the Global Forum undertakes peer reviews as well as provides technical assistance to members. A noted initiative is the recently launched Automatic Exchange of Information (AEOI) Portal.

The international business sector is an important sector and development strategy for Caribbean offshore financial jurisdictions (OFCs). In an impassioned opening address, Prime Minister of Barbados, the Hon Freundel Stuart, stressed the significance of this plenary to Caribbean offshore financial centres in helping to shape the future of the world’s tax agenda. He highlighted Barbados’ competitive advantage in international business and the country’s continuous efforts at seeking to comply with internationally agreed standards on tax transparency and the exchange of tax information. Among several actions undertaken in an effort to move from ‘partially compliant’ to ‘largely compliant’ status, this week Barbados signed the Multilateral Convention on Mutual Administrative Assistance on Tax Matters and the Multilateral Competent Authority Agreement. According to the Statement of Outcomes, there are now 89 jurisdictions covered by the MAC and 74 by the MCAA.

Prime Minister Stuart reiterated Barbados’ commitment to the work of the Global Forum. He spoke critically about Caribbean OFCs’ inclusion on arbitrary blacklists by some OECD member countries, including the recent EU and District of Columbia lists, which were published without regard to Caribbean countries’ compliance on tax matters and the reputational and development implications of such blacklists. In this vein, he reiterated the need for a clear position by the Global Forum on blacklists. Happily, one of the stated outcomes of the Global Forum was the acknowledgement that the Global Forum is currently the key global body competent to assess jurisdictions on their cooperation on matters of transparency and exchange of information for tax purposes, and that the findings in the Global Forum peer reviews should be taken into account as appropriate in any lists pertaining to non-cooperative jurisdictions in this area.

Prime Minister Stuart also condemned financial institutions’ use of the Global Forum’s ratings of countries without communicating with the Global Forum to ascertain those countries’ actual progress on the implementation of measures. He noted that this practice has penalised some countries which are ranked as “partially compliant” or lower. Noting that this could compromise countries’ development goals, he emphasised the need for such financial institutions to communicate with the Global Forum on those countries’ progress on implementation so they are not unfairly penalised. Additionally, he also mentioned the need for consideration of the possible role of the Global Forum on tax matters of importance to small vulnerable states.

In regards to the Exchange of Tax Information, the Global Forum published its 2015 Annual Report “Tax Transparency 2015: Report on Progress”, which includes details on the progress of the peer reviews and ratings.

Outcomes

Among the key outcomes of the 8th Global Forum meeting were:

  • Reiteration of the resolve to meet the commitments to implement automatic exchange of information within the agreed timelines of first exchanges in 2017 or 2018.
  • Recognition of changes made by several Global Forum members to their legal framework or practices on exchange of information on request to address Global Forum recommendations which led to the adoption of several supplementary peer reviews.
  • Acknowledgement that the Global Forum is currently the key global body competent to assess jurisdictions as regards their cooperation on matters of transparency and exchange of information for tax purposes, and that the findings in the Global Forum peer reviews should be taken into account as appropriate in any lists pertaining to non-cooperative jurisdictions in this area.
  • Agreement on the detailed framework for a second Round of peer reviews of the standard of exchange of information on request to be launched in the second half of 2016.
  • Intensification of efforts to ensure developing countries benefit from the recent gains made in international tax transparency.

The full Statement of Outcomes may be accessed here, while the press release on the conclusion of the meeting is available here.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade.