Nick Shaxson ■ Secrecy jurisdictions already aiming at loopholes in OECD project


We have been rather complimentary recently about the OECD’s emerging project to deliver automatic information exchange globally. It contains many positive (and important elements), but we also noted some shortcomings. One of the loopholes we noted was:

“It is increasingly easy for individuals to move residency elsewhere, as more jurisdictions offer easy residency packages. This could be another way to  escape reporting.”

Well, it seems that offshore jurisdictions are already slavering at the prospect of this particular escape route, which certainly won’t be to everyone’s taste, but will have a significant impact. And they are already gearing up to exploit it.

Now, from the Bahamas Tribune, an explicit admission that they are going after this particular loophole:

“A Cabinet Minister believes the Government’s proposed ‘user-friendly’ Immigration policy can “revolutionise” the Bahamas’ position as an international business centre, suggesting it was likely to have been the financial services industry’s leading priority. . .

The OECD release on February 13 on automatic exchange, it models automatic exchange based on tax residency, not citizenship. It helps the Bahamas position itself in that context.”

This will completely derail the OECD scheme for those investors that obtain such residency. For (let’s say) a German taxpayer with a bank account in Switzerland who pretends she is a Bahamas resident, the paperwork will be sent to Bahamas, not to Germany, and she will escape.

The OECD needs to tighten up the system by providing incentives (such as sanctions on recalcitrant jurisdictions) to get widespread international implementation its standards, and put in place robust anti-avoidance measures, among other, on residency. Extra checks, for example, could be triggered by recent changes of residency, cases where residency doesn’t match nationality and/or place of birth, etc.

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