A draft report by MEPs calling for the 'phasing out' of Citizenship by Investment schemes has been presented to a EU Parliamentary Committee.

The draft report prepared by Co-rapporteurs Jeppe Kofod and Luděk Niedermayer from the Financial Crimes, Tax Evasion and Tax Avoidance (TAX3) committee in the European Parliament was presented to the public today. 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 on Malta, given that it proposes doing away with Citizenship by Investment schemes. 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.

Paragraph 90 of 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" 

Paragraph 91 of the draft report continues on the issue, and calls for the phasing out of all golden visa schemes.

"(91) 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 Anti-Money 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."

Paragraph 92 of the draft report would see the MEPs call 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 whole report includes over 200 articles, and it is unclear what, if it is passed through as is, the possible implications on Malta's tax system currently are.

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 Chair of the committee, Petr Jezek, was present at a press conference on the draft report today. He 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.

During the press conference, one EU journalist said that there are good rules in place but are not enforced properly. She asked if there is "something more from member states that needs to be done, and can they be trusted? The example I am thinking of at the moment is Pilatus bank, where the authorities in Malta did not seem to be doing their job properly, and the situation was kicked up to the European Banking Authority. Do you want to see EU regulatory body taking a clearer role and greater responsibility to ensure regulations are implemented?

The other co-rapporteur, Luděk Niedermayer,  responded  that the overall system in the EU is only as strong as the weakest point is weak." It is not enough for 90% of member states to do an excellent job in tackling money laundering and the rest not. The minimal standard must be sufficient" he said, while adding that he does not believe centralisation is always the solution. He said that it is local work to look after the concrete situation.

"Sometimes the problem is not that the rules are bad, but that they are different, and that is the core stone of profit shifting and tax avoidance. Sometimes it is very important to agree that we have the same rules."

Asked about the Golden Visas, and other programs, Niedermayer said that "the question on golden visas and other programmes on getting residence permits was one new things in our report. We looked at it in terms of tax competition as well as in a broader concept. For EU society and values, it is not good to have possibility to buy into the society by paying an amount and becoming an EU resident, even a citizen. That is not good."

He said that such programmes have risks, as the people would have Schengen priviledges.

The full draft report can be read here.

PN MEP Francis Zammit Dimech, in reaction to the report, said: "Concerns related to proper lack of due diligence as regards to persons buying the passport of a European Member State and in the process acquire also EU citizenship with freedom of movement all across the EU means in practice that we are also facing totally unnecessary security risks. This is why we shall keep on insisting on the full and clear disclosure of the names of all persons acquiring citizenship and not try to hide those names from public attention and scrutiny."