Within the framework of Monaco’s commitments to the OECD and the European Union, its banks have started making preparations to collect and submit information relating to the accounts of some of their clients, using an internationally accepted standard. At the last “Rendez-Vous Gordon S. Blair”, Gilbert Delacour, associate and Managing Director, delivered a progress report on the implementation of the automatic exchange of information in Monaco and related practical requirements for banks.
How is Monaco dealing with the automatic exchange of information?
After an extensive communications campaign about its agreements with the OECD and the European Union, the government put in place the legal framework authorizing exchanges of information, while enhancing the system for protecting personal data. Throughout December 2016, five laws and four sovereign ordinances were passed.
Furthermore, the appropriate operational formats and procedures were put in place and a practical guide aimed at Monaco-based financial institutions was published. This defines the logical process which the banks must follow to comply with the AEI.
What are the obligations for Financial Institutions?
To comply, banks must act in accordance with the legislative and regulatory texts which have been published.
They will, in particular, need to refer to Sovereign Ordinance n°6208 of 20 December 2016.
This ordinance contains the definition of a “Natural person residing in Monaco”. It also specifies the obligations for declarations, due diligence, methods of communication, and some specific guidelines for carrying out obligations.
Obligations relate more to process than outcomes and, within this context, the banks will have to provide proof that they have carried out due diligence.
Communicating the fiscal residence of the account holder to the directorate of Tax Services is one of these obligations.
How to define Residency?
First, residency is defined in terms of the three criteria mentioned in the ordinance:
- the main place of abode,
- the home (where the family lives),
- the centre of that person’s interests.
It should be noted that the certificate of residency issued by the Office of Public Safety (Sûreté Publique), may be needed to establish proof of residency in Monaco, but there are no plans to extend this certificate to all persons who are residents of Monaco. It should also be noted that this certificate exists for civil rather than tax purposes.
Also, in the event of questions about their clients’ tax residency, the banks will be able to draw on both:
- the definitions provided by the OECD, and
- internal law and the practices of neighbouring countries.
They may also, in accordance with the law, outsource analysis operations to service providers and, if needs be, obtain a legal opinion.
What are the situations in which you believe that doubts would be permissible?
There are persons who may qualify for tax residency in two or more states. This risk is all the greater, because Monaco has signed very few tax agreements.
There are also increasing numbers of “world citizens”, whose residency is difficult to determine.
Finally, let us not forget about complex ownership structures which may create tax links which could make account holders resident overseas for tax purposes.
What recommendations to you give to your clients to clarify their residency status in Monaco?
First, we encourage them to strengthen their local connections: assets held in Monaco, setting up a family office, presence of family members with them.
Then, we advise them to simplify their asset ownership structures using, insofar as possible, Monaco-based legal instruments.
Finally, it may be useful to review the way in which their overseas business activities are carried out, particularly in terms of board memberships or management duties.
