A growing focus on transparency is clashing with wealthy individuals' need to move assets across borders
As countries attempt to curb the flight of assets, ultra-high-net-worth individuals are taking steps of their own to move their money where it can stay off regulators’ radar screens.
According to UK-based consultancy Knight Frank’s recently released 2018 World Wealth Report, many nations have formulated or increased taxes that mostly target foreign high-net-worth investors and buyers in order to keep assets on-shore.
At the same time, governments are more interested in curtailing, or at least monitoring, the global movement of wealth. Critical to that is the OECD-inspired Common Reporting Standard (CRS), which is an important step toward exposing where ultra-high-net-worth individuals (UHNWIs), as well as businesses, are placing their investments. Launched in September, the initiative currently sees more than 100 nations automatically sharing data on foreign accounts.
“[F]ull transparency and total disclosure is coming,” Knight Frank said. “But for now, the desire for privacy remains a factor influencing UHNWI behaviour.”
One notable trend is increasing demand for second passports and residencies. Citing data from its Attitudes Survey, the firm said 34% of UHNWIs already own a second passport, and 29% are planning to purchase one. In addition, 21% are reportedly considering permanent emigration.
“The result has been a bidding war, as more countries seeking new sources of revenue try to encourage foreign direct investment in return for citizenship,” the firm said. These so-called “residency by investment” programs allow foreign UHNWIs who invest a certain minimum amount in a country to effectively become citizens — which could be desirable based on a government’s regulatory “friendliness.”
Governments keen to load their coffers with new revenue would of course need to attract foreign investment with sweet policies. But that naturally conflicts with their desire to preserve their existing tax revenue streams. As Knight Frank noted:
“The tension between the growing globalisation of wealth and the desire for governments to provide controls will not easily be resolved, in large part because governments are conflicted in their desire to protect existing tax revenues at the same time as attracting new sources of wealth.”