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Compulsory tax audit for Liechtenstein banks accounts

By BILL BLEVINS [email protected]

Bill Blevins is the Managing Director of Blevins Franks. He has specialised in expatriate investment and tax planning for over 35 years. He has written books and gives lectures on this subject in Southern Europe and the UK.

Liechtenstein has made marked strides in its aim to discard its reputation as a notorious tax haven.

Much of this has been driven by Liechtenstein’s ruling royal family and since the concerted international crackdown on tax evasion began around the G20 summit in April 2009, Liechtenstein has transformed itself considerably. 

Bank account holders will be pushed into compliance by ground-breaking new laws which come into force in September whereby bank accounts in Liechtenstein will be forced to undergo a compulsory tax audit.

The new laws, passed in early July, are in conjunction with HM Revenue & Customs (HMRC) and will ensure that the UK government receives all tax owed from Liechtenstein bank accounts.

All UK clients who are found to owe tax will have to make a declaration to HMRC through the Liechtenstein Disclosure Facility (LDF). If they do not do so, their accounts will be closed.

It is estimated that there are around 5,000 British account holders in Liechtenstein and HMRC expects to receive around one billion Pounds Sterling from the exercise.

Local banks are now writing to their UK clients asking them to prove that they do not have a UK tax liability. If they do, they must make a disclosure or close their account.

According to a report in The Sunday Telegraph, the effect so far is that instead of shying away from Liechtenstein, UK tax evaders are actually using the LDF to get their tax arrears in order, especially as it is more advantageous than previous UK tax disclosure facilities.

The revolutionary tax strategy for Liechtenstein is being backed by Prince Maximilian, chief executive of the principality’s largest bank, the LGT Group.

He told the newspaper: “For those who have wanted to use offshore tax havens for tax evasion… with surveillance and intelligence, the risks are now very high.” 

The Prince commented:  “[Western governments] have all known that undeclared money was offshore for 30 years.  Why the change of gears in 08/09? The context was the global financial crisis and states realising they need more money.

“They looked to offshore money as an opportunity to bring taxpayers’ non-declared money to declaration.  The US and the leading political forces in Europe built a consensus around attacking that issue under political pressure.”

He added: “We understood their fiscal problems and we had sympathy for concerns so we said, let’s address this in a constructive way.”

Liechtenstein Disclosure Facility (LDF)

The LDF was set up in August 2009 and emerged from an agreement between UK tax officials and Liechtenstein.

Under its conditions, UK tax evaders with accounts in Liechtenstein can benefit from favourable penalties including a 10% fixed penalty on unpaid liabilities, immunity from prosecution and anonymity.

Only ten years of liabilities need to be disclosed up until April 5, 2009, instead of the usual twenty. Participants have an almost five year window in which to disclose, closing March 31, 2015.

To take advantage of the LDF, from September last year assets had to be in Liechtenstein from August 1, 2009.

After that date investors could disclose assets transferred to Liechtenstein from December 1, 2009.

In fact, assets need only be a single bank account opened with a modest deposit, which can then be used as a stepping stone for disclosure of any unpaid UK tax on offshore assets, whether based in Liechtenstein or elsewhere.

Stolen data

Bad publicity fell on Liechtenstein when the account details of suspected tax evaders contained on a computer disk was stolen in 2002 by a former employee of LGT Treuhand AG, the trust arm of LGT Bank.

In 2006, HMRC was offered the list and, in 2008, reportedly paid 100,000 Pounds Sterling for information which resulted in the UK tax authority investigating around 100 people for potential tax evasion.

Germany also bought a list of between 750 and 1,000 names supposedly by the same informant, for between four million and five million Euros. Many other countries were also interested in names on the disk.

Tax Information Exchange Agreements (TIEAs)

Liechtenstein was blacklisted by the Organisation for Economic Co-operation and Development (OECD) in 2002 as an “unco-operative tax haven”.

By 2008 it had declared its willingness for co-operation and transparency and worked towards being removed from the blacklist which happened in May 2009.

On April 22, 2010, Liechtenstein’s parliament ratified eleven TIEAs with the UK, France, Germany, the Netherlands, Ireland, Belgium, Monaco, Andorra, St Vincent and the Grenadines, St Kitts and Nevis, and Antigua and Barbuda and had signed five others.

Savings Tax Directive (STD)

Under the European STD Liechtenstein withholds tax on savings income on accounts held by EU residents.

Account holders can opt to disclose this income in their country of residence instead.

The withholding tax system is in place for a transitional period.

Is it possible that in due course Liechtenstein will move towards automatic exchange of information, thereby following the lead set by the Isle of Man which is withdrawing the withholding tax option and operating automatic exchange of information only from July 1, 2011?

Liechtenstein is a former tax haven leading by example in working towards tax transparency and meeting the demands of world governments to permanently erase the illegal practice of tax evasion.

In today’s era of wealth management and tax planning, tax liabilities can be reduced with legitimate vehicles designed to protect personal wealth.

An international tax and wealth management firm of 35 years standing like Blevins Franks can advise you according to your individual circumstances.

To keep in touch with the latest developments in the offshore world, check out the latest news on the Blevins Franks website by clicking the link on the right of this page.