Liechtenstein Disclosure Facility

Liechtenstein has been used for sophisticated tax evasion arrangements because of its highly secretive banking system and robust "Anstalt" trust structures. A new Tax Information Exchange Agreement will enable the UK and Liechtenstein to exchange information.

A tax disclosure programme, the Liechtenstein Disclosure Facility, is intended to sort out the tax arrears of UK residents with investments in Liechtenstein. It will allow penalties on unpaid tax to be capped at 10% of tax evaded providing the taxpayer tells HM Revenue & Customs everything. This penalty loading is very favourable but it should be noted that the authorities will seek to recover interest for the late payment of tax.

However, the major incentive appears to be an assurance that liabilities will only be taxed for 1998/99 and subsequent years. This is a significant concession as HM Revenue and Customs do have the statutory right to recover liabilities for 20 years; although this somewhat draconian provision is seldom exercised to its full extent.

It is implicit that parties who take advantage of the scheme will be immune from prosecution in relation to the tax offences they disclose. Whilst no prosecutions have arisen against parties who failed to disclose under the 2007 scheme, a rather more hard line approach can be anticipated this second time around.

Specialist legal advice should be taken by anybody who has made inappropriate claims for State Benefits whilst holding substantial offshore assets. The amnesty does not extend to offences other than tax evasion and it is possible that other Government Agencies may seek to bring prosecutions for non tax related offences.

Those who fail to make a full disclosure by the end of the programme may find their accounts in Liechtenstein closed down. All Liechtenstein financial intermediaries will have to identify clients who need to confirm their tax position with the UK tax authorities. The intermediaries have to write to their clients and put them on notice of the requirement for them to do so within a specific time frame.

Where a UK investor confirms to the intermediary that they are cooperating with HMRC the financial intermediary can continue to provide financial services to that person. If a UK investor cannot confirm that they are cooperating with HMRC the Liechtenstein financial intermediary must withdraw financial services in Liechtenstein or apply various sanctions. Apparently the Liechtenstein Government are going to introduce new laws to underpin the process.

The Liechtenstein Disclosure Facility (LDF) will run more or less alongside the New Disclosure Opportunity (NDO) from 1 September 2009 to 31 March 2010. To take part in the programme, investments must either be held in Liechtenstein on 1 August 2009, in which case the person can participate from the start of the facility on 1 September. If the investments or assets were moved into Liechtenstein after that date, the person can participate from 1 December 2009.

Note that the scheme only applies to tax disclosures where there is an offshore aspect. HM Revenue and Customs are anxious to encourage other tax disclosures but they are at pains to indicate that the favourable terms offered here will not be made available outside the Liechtenstein Disclosure Facility. It is our opinion that this position may well be unsustainable in context of penalties for example. Specialist advice should be taken by anyone contemplating a disclosure where there are no offshore aspects.