OECD is closing CRS loopholes

HK retirement schemes under ORSO and citizenship-by-investment targeted by OECD

The OECD is counting on the public in identifying schemes targeted to circumvent the Common Reporting Standard (CRS). The public is invited to report any such schemes to the OECD through the Automatic Exchange Portal. The Schemes and avoidance products include pension schemes and insurance products established to avoid CRS reporting, as well as residence- and citizen-by-investment programs.

Hong Kong’s Occupational Retirement Schemes (ORS) are one of the first products to be named and shamed as avoidance schemes and prompted the Inland Revenue Department (IRD) to issue a clarification and highlight that the anti-avoidance provisions of the Inland Revenue Ordinance (IRO) take effect on abusive arrangements.

Those who jumped the gun setting up an ORS in the hopes to dodge CRS reporting are now not only stuck with a likely expensive structure that won’t have the desired effect, but, depending on the structure itself, the ORS may be a reporting financial institution in itself. ORS are commonly structured as trusts and, with the removal of the exclusion as a pension scheme under anti-avoidance provisions, could fall within the scope of an investment entity, and thus a reporting financial institution, or the trustee could be a reporting financial institution.

Other avoidance schemes that are targeted by the OECD are economic citizenship and residence programs through which the nationality or a residence permission is obtained by an investment.