Closing the Gap in Real Estate Tax Transparency
Real estate has long been a blind spot in global tax cooperation. While regimes like CRS (and newer rules for crypto-assets) have improved visibility of offshore financial holdings, cross-border property remains far less transparent. Tax authorities often lack insight into which foreign properties their residents own and what income those assets generate. Studies indicate that overseas real estate investments have grown in recent years and are frequently underreported, with foreign property sometimes used to hide undeclared wealth that would have been reported under CRS.
By expanding information-sharing on immovable property, the OECD’s framework aims to ensure taxpayers meet their obligations on overseas property ownership and income. Better data will let authorities verify that rental income and property sale gains are properly declared, and even confirm whether the funds used to buy a property were taxed in the first place. Ultimately, this initiative is designed to deter tax evasion via real estate and bring this asset class in line with the transparency now expected for financial assets.
The IPI MCAA: A Two-Module Exchange Agreement
To put this framework into practice, the OECD has developed a Multilateral Competent Authority Agreement (MCAA) for exchanging immovable property information, known as the Immovable Property Information MCAA (IPI MCAA). This agreement provides a legal basis for participating jurisdictions to automatically swap property-related data on a voluntary basis. A key feature is its reliance on “readily available” data, existing electronic records in government databases and registers (e.g. land titles and beneficial ownership registers), rather than imposing new reporting burdens. By tapping into information tax authorities already have access to, the framework allows quicker implementation with minimal new legislation.
Under the IPI MCAA, information exchange is organized into two modules, each targeting a different aspect of real estate transparency:
- Module 1 – Ownership and Acquisitions: Provides visibility into taxpayers’ foreign property holdings and purchases. It begins with a one-time “look-back” exchange of all pre-existing property holdings that each country’s residents have in the other’s jurisdiction. After this initial exchange, Module 1 continues with annual exchanges of new acquisitions, giving authorities regular updates on properties their taxpayers bought abroad in the previous year.
- Module 2 – Income and Disposals: Focuses on income and gains from overseas real estate. Participating countries will annually share data on disposals of properties and related income. In practice, this means tax authorities are informed of any property sales by their residents in other jurisdictions, as well as any recurrent income from those properties (e.g. rental income). This ensures that capital gains and rental yields from foreign real estate cannot slip under the radar.
Implications for Tax Compliance and Planning
For private clients and family offices with international real estate, the coming changes carry several important implications:
- Heightened Tax Compliance: Automatic sharing of property data will make it easier for authorities to detect previously undisclosed foreign assets or income. Individuals must ensure they fully report all rental income, capital gains, and the properties themselves in their tax filings (including any wealth or inheritance tax returns). Those who suspect past non-compliance should consider voluntary disclosures or other corrective steps before the new exchanges begin.
- Reevaluating Holding Structures: Many families hold real estate through companies, trusts, or other entities for privacy or efficiency. However, ownership transparency will sharply increase under this framework. Since land registries and even beneficial ownership records will feed into the exchange, using complex structures to obscure ownership will be far less effective. It’s prudent to review holding structures with advisors now to ensure they remain appropriate and compliant under the new transparency – and to make adjustments if needed.
- Estate Planning Adjustments: Cross-border estate plans must now account for the visibility of offshore assets. Foreign properties will be on the radar of home tax authorities, so they must be factored into succession plans and any inheritance tax calculations. Families should ensure their ownership structures facilitate smooth, tax-compliant transfers to heirs. Early steps like strategic gifting or restructuring might be advisable in light of the impending transparency.
Preparing for Enhanced Transparency: The Value of Professional Advice
The advent of this OECD framework is a reminder of the rapidly evolving global tax landscape. Rather than waiting to react, private clients should prepare proactively – and professional advice is essential in this regard. Experienced tax advisors at Rosemont can review your international real estate portfolio to identify compliance gaps or risks under the new regime. They can guide any needed remediation (e.g. correcting past filings) and help optimize how assets are held going forward.
Beyond compliance, Rosemont can help align your real estate holdings with your broader wealth strategy and estate planning in a tax-efficient, transparent way. They might recommend adjustments such as modifying ownership structures or addressing multi-jurisdictional estate issues to meet the new requirements. With expert guidance, you can satisfy the upcoming reporting obligations while preserving family wealth and avoiding unnecessary tax pitfalls.
For more information, please contact p.brigham@rosemont-mc.com