The scheme is part of an overhaul of Liechtenstein’s famously secretive banking tradition, an element of which is an unusual tax ‘amnesty’ programme with the UK known as the Liechtenstein Disclosure Facility (LDF). Under the LDF, which runs through March 2015, British taxpayers with undeclared offshore assets may reveal them to HMRC through a Liechtenstein entity in exchange for reduced penalties.
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.
Passage of the Law on Administrative Assistance in Tax Matters this week will mean 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.
"The banks will be audited and possibly fined if they don’t initiate procedures to review their client base in order to unearth these clients, so they can’t just sit on their hands," he added.
Cassidy also noted that UK taxpayers with accounts in Liechtenstein who know themselves to be tax compliant already should resist complacency as well, "because, once this law is passed, you will still have to have a qualified accountant formally certify that you are in fact UK compliant — otherwise the Liechtenstein bank will cease to act for you".
Approval of the law by Liechtenstein’s Parliament this week would also mean the official ratification of a tax information exchange agreement and memorandum of understanding between Liechtenstein and Britain, both of which, like the LDF, were agreed by the two countries on 11 August 2009.
More information is available at www.liechtenstein.li.