Dual residency, tie‑breakers and multi‑jurisdictional risks—Navigating CRS 2.0 complexities
As Common Reporting Standard (CRS 2.0) reshapes the global tax transparency landscape, private banks and wealth managers face rising complexity in identifying and reporting client tax residencies. This comes at a time when regulators are stepping up scrutiny, as seen in recent Monetary Authority of Singapore (MAS) enforcement1 actions against banks, trust companies, and fund administrators for Anti-Money Laundering (AML) breaches. Among the most challenging and often misunderstood areas is the treatment of dual residency and the application of tie‑breaker rules.
This topic is particularly relevant for regional high‑net‑worth individuals (HNWIs) and other multi‑jurisdictional investors such as those holding multiple passports, citizenships, permanent residencies, or maintaining significant personal and economic ties across borders. Recent trends include not only Chinese nationals but also inbound interest from Korean HNWIs, Australian expatriates, and UK non-doms—all facing complex rules on breaking or retaining tax residence. Mismanaging these obligations can create regulatory exposure, operational burden, and reputational risk.
Understanding the tie‑breaker rule
Dual residency cases often hinge on how the tie-breaker rule is applied under CRS 2.0, which ultimately determines what financial institutions (FIs) are expected to report:
For FIs:
- FIs must report every jurisdiction of tax residency declared by a client and validated through the FI’s CRS due diligence procedures.
- Several jurisdictions apply a global basis of taxation or have tightened residency rules. Examples include Australia and the UK, which have revised their non-dom regime requiring full disclosure of all tax residencies, regardless of tax treaties or preferences.
- The rule does not allow banks to choose a “primary” country for reporting; that determination rests solely with tax authorities.
- FIs are expected to exercise judgement where client declarations conflict with other information held on client profile (e.g., a Cambodian national with Chinese heritage presenting a Maltese passport and evidence of extended stays in multiple jurisdictions).
For competent authorities:
- Tie‑breaker rules are government‑to‑government mechanisms applied when multiple jurisdictions may claim a taxpayer as a resident.
- The rules help prevent double taxation or clarify residence for tax treaty purposes, but do not reduce reporting obligations for banks.
Key takeaway: FIs must report all residencies identified and verified through their due diligence processes; the tie‑breaker outcomes are only relevant at the tax authority level.
The rise of dual tax residency
Global mobility, second citizenships, and wealth diversification are driving a surge in dual and even multi‑residency profiles that pose new challenges for regulators and financial institutions alike. Common examples include:
- Chinese nationals holding foreign permanent residencies or second passports;
- Korean HNWIs setting up Singapore structures for family shareholdings and tax planning;
- Individuals maintaining homes in multiple countries (e.g., Singapore, Hong Kong, and Mainland China);
- UK non-doms or Australian expatriates maintaining economic ties despite relocation; and
- Cross‑border business owners with homes or other economic ties in several jurisdictions
These situations are increasingly under regulatory scrutiny due to the risk of residency arbitrage where taxpayers strategically claim or deny residency to minimise tax exposure—a growing focus for both tax and AML regulators.
Enforcement and regulatory focus
Globally, regulators are sharpening their focus on dual residency misreporting:
- OECD and G20 have prioritised cross‑jurisdictional information sharing and multi‑residency cases.
- Singapore continues to expand Automatic Exchange of Information (AEOI) cooperation and maintain active exchange relationships with multiple jurisdictions2.
- Several jurisdictions in the region have strengthened oversight of offshore asset structures, particularly where foreign residency is claimed but domestic income is underreported.
While the number of enforcement cases has historically been limited, the direction of travel is clear—dual residency claims and tie‑breaker scenarios are attracting closer scrutiny as CRS 2.0 takes hold.
Implications for private banks and wealth managers
The operational and compliance implications are significant:
- Enhanced due diligence: Capture all declared residencies with robust supporting documentation and reconcile against broader Know Your Customer (KYC) data.
- Complex reporting flows: Although FIs only report to their domestic authority, multi-residency accounts increase the data volume and complexity of reporting. Any errors in data capture or validation can raise the risk of mismatches once the information is exchanged across jurisdictions.
- System and process readiness: Onboarding, classification, and reporting processes must handle multi‑jurisdictional data seamlessly, including changes during periodic reviews.
- Reputational and regulatory risk: Errors or omissions in reporting can lead to audit exposure, regulatory penalties, and potential loss of client trust.
Best practices to manage risk
To stay ahead, reduce exposure, and build trust, FIs should consider:
1. Dual residency screening
- Embed automated or manual (where required) checks during onboarding and periodic reviews.
2. Exercise standards of knowledge judiciously
- Balance reliance on client declarations with careful reconciliation of supporting evidence and any inconsistencies observed.
- Regulators increasingly expect FIs to apply informed judgment rather than accept declarations at face value.
3. Staff training
- Equip relationship managers (RMs) and compliance teams to handle multi‑jurisdictional client profiles confidently.
4. Proactive client engagement
- Encourage clients to provide full and consistent residency documentation and set expectations early.
5. Governance and controls
- Maintain defensible audit trails and periodic validations of reported residencies.
Conclusion and Deloitte perspective
CRS 2.0’s treatment of dual residency signals a clear shift in tax transparency, from straightforward reporting to more forensic, cross‑border oversight. For private banks and wealth managers, especially those serving HNWIs, this is both a compliance challenge and an opportunity to differentiate through robust governance.
At Deloitte, we help clients embed tax transparency considerations into the broader Customer Lifecycle Management (CLM) framework—from onboarding to continuous monitoring and final reporting. We bring together deep AEOI expertise with practical implementation experience, collaborating with our forensic, financial crime, and technology specialists.
Our end-to-end support includes assessing dual or multiple residency risks, enhancing governance controls, ensuring operational readiness, and delivering solutions that withstand regulatory scrutiny.
Proactive action today can prevent costly surprises tomorrow and protect client confidence in an era of complex cross-border reporting.
