OECD Proposes Greater Transparency for Overseas Real Estate

Since the implementation of the Common Reporting Standard (CRS) by the OECD in 2014, the transparency of overseas financial assets has significantly improved. Information about such assets is now reported annually to the tax authorities in the asset holder’s country of tax residence. However, as the saying goes, "where there’s a will, there’s a way." One common method to circumvent CRS is to convert financial assets into non-financial assets, with real estate being the most popular choice—especially in countries or regions where real estate ownership lacks full transparency. This loophole, however, may soon be addressed by the OECD.

On July 17, 2023, the Organisation for Economic Co-operation and Development (OECD) released a report titled “Enhancing International Tax Transparency on Real Estate”, which analyzed the current level of tax transparency surrounding foreign ownership of real estate globally. The report also explored new frameworks for tax transparency and proposed recommendations for broader information exchange to improve transparency.

The OECD highlighted that the volume of cross-border real estate ownership is increasing globally. Yet, tax authorities around the world often lack information about their residents’ overseas real estate holdings. This makes it difficult to accurately tax rental income and capital gains from property sales, leading to widespread tax avoidance through real estate and significant compliance challenges. The Financial Action Task Force (FATF), a global anti-money laundering organization, has already identified overseas real estate as a high-risk area.

The report is divided into three main sections:

1. Identifying the potential tax compliance risks of foreign-owned real estate and the benefits of enhancing global tax transparency;
2. Outlining the key domestic and international features of a successful real estate tax transparency framework;
3. Proposing potential improvements to the current global transparency framework, along with short- and long-term recommendations to enhance real estate tax transparency.

With the rise of global tax transparency and the advent of big data, hiding overseas assets and income is becoming increasingly unrealistic. Full compliance with global tax regulations is the only sustainable path forward. After all, tax evasion has no statute of limitations, and penalties plus interest can wipe out years of hard work overnight. Moreover, if inheritance taxes are introduced in the future, overseas real estate will undoubtedly become a key focus for tax authorities.