Draft EP report calls for ‘phasing out’ of citizenship by investment schemes

A draft report by MEPs calling for the “phasing out” of Citizenship by Investment schemes was yesterday presented to a European Parliamentary Committee.

The draft report was prepared by Co-rapporteurs Jeppe Kofod and Luděk Niedermayer from the Financial Crimes, Tax Evasion and Tax Avoidance (TAX3) committee in the European Parliament. The Committee will now proceed to discuss the issue, before taking a vote on it in the future. Following that, the EU Parliament will also take as vote.

The report deals with tax related issues, and money laundering legislation across the EU as well.

The report could have serious repercussions for Malta, given that it proposes doing away with Citizenship by Investment Schemes (CIS). The IIP scheme has become a major source of income for the Maltese government, and while the planned 2019 surplus is not wholly based on the income from this scheme, government did admit that it partly was.

The draft report reads that the MEPs are concerned that according to the OECD, Citizenship by investment (CBI) and residency by investment (RBI) schemes could be misused to undermine the Common Reporting Standard (CRS) due diligence procedures, leading to inaccurate or incomplete reporting under the CRS, in particular when not all jurisdictions of tax residence are disclosed to the financial institution.

The MEPs note that in the OECD’s view, the visa schemes which are potentially high-risk for the integrity of the CRS are those that give a taxpayer access to a low personal income tax rate of less than 10% on offshore financial assets, and do not require a significant physical presence of at least 90 days in the jurisdiction offering the golden visa scheme.

They note that they are “concerned that Malta and Cyprus have schemes among those that potentially pose a high risk to the integrity of CRS.”

Maltese Finance Minister Edward Scicluna had previously addressed the OECD report, saying that, “Malta’s listing in an OECD report is a result of a misunderstanding”

The draft report calls for the phasing out of all golden visa schemes, saying the report “Concludes that the potential economic benefits of Citizenship by investment (CBI) and residency by investment (RBI) schemes do not offset the serious money laundering and tax evasion risks they present; calls on Member States to phase out all existing CBI or RBI schemes as soon as possible; stresses that, in the meantime, Member States should properly ensure that enhanced Customer Due Diligence on applicants for citizenship or residence through these schemes is duly carried out, as required by the Fifth AntiMoney Laundering Directive (AMLD5); calls on the Commission to monitor rigorously and continuously the proper implementation and application of CDD within the framework of CBI and RBI schemes until they are repealed in each Member State.”

The draft report would also see the MEPs calling on Member States to prevent conflicts of interest linked to CBI and RBI schemes, “which might arise when private firms which assisted the government in the design, management and promotion of these schemes, also advised and supported individuals by screening them for suitability and filing their applications for citizenship or residence.”

Henley and Partners could be affected by this, should the EU pass implement said report provisions.

The report also makes reference to assassinated journalist Daphne Caruana Galizia, and urges the Maltese authorities to make progress in identifying the instigator of her murder.

The committee’s chair Petr Jezek said that the committee’s mandate is to build and complement the work of the previous work in this area by past committees, including the PANA committee.

“We started our work on 22 March,” he said, adding that they will vote on the final report in February 2019.

He said that the EU, together with member states, are tightening the screws on money laundering, tax evasion and money laundering.

Co-Rapporteur Jeppe Kofod highlighted that the report includes 208 articles, with strong language on tax evasion and money laundering.

“We have seen that the executive power in EU member states have failed fundamentally in the fight against money laundering and in the fight to close loopholes in corporate tax Systems which have enabled high levels of corporate tax evasion.”

He said that the majority of profits from multi-national corporations are shifted artificially to low tax jurisdictions.

The report, he said, concludes the need for much stronger cooperation between authorities within different member states.