This ability to keep the bulk of one’s money in, say, the same Swiss bank in which it has sat in for generations, while effectively pretending to move it to Liechtenstein, is a little-known feature of the tax ‘amnesty’ programme announced by HMRC last year, which runs through March 2015.
Liechtenstein bankers and others involved in LDF disclosures refer to the amount necessary to launch a declaration as a “meaningful” amount, and say that no firm and fast minimum has been set, although some talk of sums in the range of £50,000 (SWF80,000). Others talk of percentages of assets, such as 10%.
A Liechtenstein link considered sufficient for making a disclosure to HMRC may also be achieved through a new or existing trust or foundation, some say.
A number of companies are even understood to be offering insurance bonds that are associated with Liechtenstein institutions, which permit a taxpayer to keep all of his or her money in the country where it currently sits, as long they meet the insurance bond’s minimum investment requirements. Details on these products or the companies providing them were not immediately available.
Defining ‘meaningful’
“Broadly it is up to the financial intermediary in Liechtenstein to decide whether the established connection to Liechtenstein is, for the purpose of the LDF, sufficiently meaningful,” says Philip Marcovici, a Zurich-based former partner of Baker & McKenzie who is now on the board of Kaiser Ritter Partner, an influential Liechtenstein bank and trust company. In Liechtenstein, the word ‘intermediary’ normally refers to banks, trust companies and insurance companies rather than financial advisers, as is the case in the UK.
Marcovici, who was instrumental in helping to draft the LDF through work as an adviser to the Liechtenstein government, notes that various Liechtenstein trade associations have published guidelines for their members to help them to define “meaningful” in terms of client commitment.
UK taxpayers targeted
The LDF was hammered out between Britain and the Liechtenstein authorities last year in an effort to entice UK taxpayers with undisclosed assets hidden away in secretive off-shore jurisdictions like Liechtenstein and Switzerland to come in from the cold.
The plan was to offer them an irresistible deal – better than all the other recent tax amnesties – for a short time only, after which the penalties for non-disclosure would be severe. Penalties remain severe for those with undeclared assets whom HMRC finds first.
The 180-degree shift in approach by the once über-secretive Liechtenstein came after Germany used data stolen from LGT, the bank owned by Liechtenstein’s royal family, to go after tax evaders in 2008, prompting the microstate to take the view that traditional bank secrecy’s days were numbered.
Liechtenstein officials agreed to the deal with Britain because they thought the boost to the principality’s image and that of its banks would outweigh any downside.
The thinking, according to experts familiar with the situation, was that even though Liechtenstein’s banks might not get more than a small percentage of the wealth of some individuals who take advantage of a Liechtenstein connection in order to make an LDF declaration, they are likely to win other new, permanent clients they would not have had otherwise. At the same time, the jurisdiction would be able to claim for itself the high ground of probity and transparency that, it believed, rival jurisdictions almost certainly would be forced to move to eventually.
In the meantime, Liechtenstein is reported to have had talks with such other countries as Germany, Italy, the US and France about setting up tax amnesty schemes similar to Britain’s LDF.
Thus far no statistics on the number of people who have initiated LDF declarations have been released. However, the UK government has said it hopes the deal will bring in as much as £1bn in new revenue.
‘Win-win situation’
Russell Pfeiffer, executive director of private banking at Centrum, a Vaduz-based private bank, says banks and trust companies in the principality regard the disclosure facility as a “win-win situation”, because, he says, it gives banks and trust companies an opportunity to introduce clients to their services at the same time it is giving them a chance to come clean.
What is more, he adds, even though they are not required to, seven out of 10 of the people who have moved offshore assets to Centrum to participate in the LDF “have moved everything” there.
“Normally they lacked [a] personal relationship with the bank in Switzerland or wherever their money was before,” he says.
“They like the personal service they get here.”
Pfeiffer says Centrum is also seeing people moving some or all of their savings to Liechtenstein not because they want to take advantage of the LDF, but because they are concerned about the “trustworthiness and safety” in their home country’s banks.
Henry Fea, a Geneva-based partner with the Charles Russell law firm who has been involved in helping to arrange disclosures for UK taxpayers, believes HMRC is more interested in finding out about undeclared assets and bringing these into the tax net than it is in obsessing about what percentage of them is or is not in Liechtenstein at the moment a disclosure is made.
“They [HMRC] are taking a very pragmatic approach,” he notes. He adds that the individuals who have no need to move any assets to Liechtenstein in order to qualify for the LDF are those “who already have a connection” with the place, such as a foundation, a type of trust that is a particular Liechtenstein speciality.
“Even if there are no foundation assets in Liechtenstein, those with an existing Liechtenstein foundation already potentially qualify for the LDF.
"Of those now seeking to qualify for the LDF, it is those with a strong connection to their existing bankers/investment managers in, say, Switzerland – and no current Liechtenstein connection – who may [choose to] transfer only the minimum amount to Liechtenstein, whereas those with only a weak relationship with their existing non-Liechtenstein bankers/ investment managers who may be happy to move all or a substantial part of their offshore assets to Liechtenstein, perhaps long term.”
For Fea, the main concern of individuals with undeclared offshore assets should not be whether to move them to Liechtenstein or not, but to do something – anything – right away.
“Do not wait until HMRC come for you,” he warns. “That is the message to get across. We always recommend an early disclosure when clients come to us, because there is always the risk that HMRC will come after you before you get to them.”
Law’s passage expected
As reported this morning, Liechtenstein’s Parliament as expected has approved a key piece of legislation that will enable the clock on the principality’s new tax transparency scheme to be started on the first of September.
Passage of the Law on Administrative Assistance in Tax Matters means that Liechtenstein banks, financial advisers, trustees and other asset custodians will have three months in which to notify any of their clients who they suspect could have tax reporting obligations elsewhere that they have 18 months in which to provide evidence of tax compliance.
Under the law, the advisers would be required to “cease providing relevant services” to any clients who refused to comply with this request, or face possible sanctions.
The three-month period begins on the date the financial institution identifies a client as being, for example, a UK citizen, according to John Cassidy, a tax investigations partner with PKF (UK) in London.
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KEY LDF DATES:
April 1999 to April 2009: The 10-year period during which penalties for undeclared income is capped at 10% of the taxes evaded (a better deal than other recent HMRC tax amnesties which have required a 20-year period).
For those who initiate an LDF disclosure, the penalty for any undeclared offshore assets existing after April 6 2009 will be 20% of the taxes evaded.
11 August 2009:Memorandum of Understanding between the Liechtenstein and UK governments, as well as a Tax Information Exchange Agreement between the two countries
11 August 2010: Date by which Liechtenstein had agreed to enact the relevant “implementation” legislation, starting the 18-month clock for Liechtenstein firms to ensure their clients’ assets are all fully declared to their relevant tax authorities. Such firms will be required under this law to cease providing services to any clients who fail to declare their Liechtenstein-held assets during this period
January 2011: The last date taxpayers can file a tax return for the 2008/2009 year, which is the last one covered by the LDF terms.
31 March 2015: Date the Liechtenstein Disclosure Facility ends
