Updated | OECD threatens blacklist for Malta IIP over concerns on tax avoidance

Malta’s sale of passports requires mitigating measures to prevent it from being abused by tax avoiders, OECD tells finance minister

The OECD is concerned that schemes such as the IIP can offer a back-door to money-launderers and tax evaders
The OECD is concerned that schemes such as the IIP can offer a back-door to money-launderers and tax evaders

Malta is facing scrutiny on the operation of its citizenship-by-investment scheme by the rich countries’ club OECD.

The Organisation for Economic Cooperation and Development’s centre for tax policy (CTPA) told finance minister Edward Scicluna it wants to explore “possible mitigating measures that could be taken to prevent misuse” of the resident by investment scheme.

The CTPA’s director Pascal Saint-Amans had already met Scicluna in 2017, having already shared concerns on the Individual Investor Programme, which sells Maltese citizenship to the global elite for €650,000 apart from other commitments to buy property and bonds.

In a letter to Scicluna published in PN organ In-Nazzjon, Saint-Amans said he was concerned Malta’s IIP could end up being blacklisted unless mitigating measures are not introduced to prevent tax evasion.

The OECD is concerned that schemes such as the IIP can offer a back-door to money-launderers and tax evaders, specifically to circumvent the common reporting standard for the automatic exchange of tax and financial information on a global level.

The OECD is compiling a list of schemes that present a high risk of being misused for circumventing the CRS.

“Although countries will be consulted in this process and we don’t want to anticipate the outcome of this work, we are concerned that the Maltese RBI scheme is likely to be included in a such a list,” Saint-Amans said.

In March the OECD adopted model mandatory disclosure rules which require promotors and intermediaries of passport schemes to disclose any tax avoidance, in the hope that it deters such schemes from being used to circumvent the reporting standard and provided intelligence to tax authorities.

“EU member states have already agreed to implement these rules as part of a wider directive on mandatory disclosures,” Saint-Amans told Scicluna.

According to a consultation paper issued by the OECD, citizenship-by-investment schemes can potentially be exploited by tax evaders who exploit their tax residence and physical residence status to avoid paying tax.

The OECD says that the risk of abuse is “particularly high” when the scheme imposes no limited to be physically present in the jurisdiction, which Malta’s IIP has already been criticised for despite an obligation to buy property; and when the scheme is offered by low tax jurisdictions or those that exempt foreign source income, as Malta does.

The OECD standard provides a framework for governments to obtain detailed account information from their financial institutions and share it annually with other jurisdictions. More than 65 countries and jurisdictions, including Switzerland, Luxembourg and Singapore, have already publicly committed to implementation of the new standard. But other financial centres such as Dubai and Panama have indicated they will resist any global push for greater transparency.

Ministry for Finance reaction

In a reaction this afternoon, the Finance Ministry said that none of the meetings Scicluna held with OECD officials, including CTPA president Saint-Amans, discussed the issue of CRS.

It also denied that the IIP programme was ever discussed.

The letter, it said, was a result of the work carried out by the OECD and published on 23 March, a month prior to the date of the letter.

"It is to be noted that Malta is closely following the OECD’s ongoing work concerning resident by investment (RBI) and citizenship (CBI) to prevent the possible circumvention of the CRS," the Ministry said, "In line with Malta’s transparency commitments, the tax authorities shall soon implement such rules/guidance, including the implementation of the EU agreed Directive, on mandatory disclosures." 

It underlined that the work of the OECD is not meant to make a value judgement on the existence of RBI and CBI schemes that exist in a number of countries, but rather to seek to ensure that such measures are not inadvertently used to bypass obligations under the OECD`s Common Reporting Standard.

The OECD’s letter is an invitation for countries to be involved in this work, the Ministry pointed out.

Malta, had last month, as part of the ECOFIN Council, supported a proposal for an amendment to the directive on administrative cooperation dealing with mandatory disclosure rules for intermediaries (DAC VI), it highlighted.

"As has been the case so far, Malta will not only continue to implement its transparency commitments, but will continue to cooperate with the OECD’s officials to discuss issues of mutual interest," the Ministry strssed.