Amid concerns over investments in foreign real estate being used to “shelter undeclared assets”, the OECD has suggested automatic exchange of information among countries and setting up of digitalised ownership registers accessible to designated relevant government agencies on a real-time basis.
The ‘Enhancing International Tax Transparency on Real Estate’ report released by the Paris-based Organisation of Economic Cooperation and Development (OECD) ahead of the G20 Summit, said there have been significant increase in foreign-owned real estate assets over the past decade, and a lot of funds have been shifted from financial assets to buying foreign real assets to avoid tax compliance.
“While tax administrations often only have limited visibility over the cross-border ownership of (and income from) real estate, there are indications that the proportion of real estate owned by non-residents has continued to increase in recent years... Information exchanged under the CRS can also provide indirect indications to tax administrations about foreign real estate ownership or transactions,” the report said.
Stating that trends underline the tax compliance risks associated with cross-border ownership of real estate and strengthen the case for enhancing tax transparency in this area.
The report suggests that, in the short-term, interested countries could make significant progress at limited cost by exchanging information that is readily available on the basis of existing international legal and operational gateways for the exchange of information.
The report also suggests two models for longer-term structural improvements to tax transparency.
The first is based on the traditional exchange of information approach, underpinned by common due diligence and reporting rules.
“The second is based on a more novel direct access-based model, building on the ongoing trend, in particular in the anti-money laundering and financial regulatory space, towards the inter-connection of digitalised ownership registers accessible to designated relevant government agencies on a real-time basis,” it added.