This new 20% minimum is believed to reflect some dissatisfaction on the part of Liechtenstein’s wealth management industry with the amount of permanent business it is retaining as a result of the LDF scheme, as many of those making disclosures are removing the bulk if not all of their assets from Liechtenstein institutions as soon as their cases have been completed.
Since the LDF scheme was launched in 2010, there have been at least two other clarifications of the amount of the money on which individuals making declarations were required to keep in Liechtenstein, both of which were intended to raise the amount UK taxpayers taking advantage of the LDF were expected to place on deposit in the country’s institutions.
The LDF scheme, which runs to 5 April 2016, was conceived in 2009 by HM Revenue & Customs, in cooperation with Liechtenstein’s government, to encourage UK taxpayers with undisclosed offshore accounts to formally declare them, in exchange for a relatively less severe penalty than if they came forward in the UK or were found out.
The central feature of the scheme involves requiring those making a “declaration” transferring what is usually referred to as a “meaningful” amount of their undeclared offshore assets to a recognised Liechtenstein institution, giving them a “meaningful relationship” with the Alpine principality.
Until now, those making an LDF disclosure have had only to prove to HM Revenue & Customs, which oversees the scheme in its role as the UK tax collecting body, that they had a “meaningful connection”, in financial terms, to Liechtenstein. From 1 Dec 2011, HMRC looked for this proof in the form of a “confirmation of relevance” from the financial intermediaries of the individual UK taxpayers who were seeking to make an LDF declaration, who in turn were not officially required to look for a specific minimum investment level.
In July 2010, some sources told this publication that the unspecified “meaningful” amount was understood to be in the range of £50,000 (CHF80,000), while others spoke of “percentages of assets, such as 10%”.
From this coming Saturday, though, according to a document headed “Ordinance of 10 July 2012 Amending the UK TIEA [tax information exchange agreement] Ordinance”, any “relevant person” making an LDF disclosure must prove the necessary “materiality” of having established a business relationship with a Liechtenstein bank by booking “at least 20% of [his or her] assets” in the institution.
The document does not say this, but the assets in question are only those bankable assets the individual is seeking to include in his or her LDF disclosure, sources close to the situation said.
Only above the CHF3m sum is the percentage threshold “no longer relevant”, the document says.
There are other minimums that have been set for trust companies and insurance companies that are also seeking to prove a “materiality of a business relationship” for LDF purposes, according to the document, which has a space on its second and last page to be signed by Liechtenstein prime minister Klaus Tschütscher.
Investors ‘best served’ by sustainable banking
Simon Tribelhorn, chief executive of the Liechtenstein Bankers Association, said his association believes investors are best-served when the banks they use are able to take a long-term perspective, and to be able to “establish and maintain long-term and sustainable business relationships” with them.
The organisation is “convinced”, he added, that the need for would-be LDF scheme participants to meet the new minimum asset thresholds “does not stop the LDF remaining an attractive option for those…clients needing to regularise their historic UK tax affairs”.
“The clarification of the term ‘meaningful relationship’, by determining quantitative threshold values, will provide clear requirements to be met for the benefit of customers and financial intermediaries,” Tribelhorn added.
“We are of the opinion that the LDF is an excellent opportunity to win new customers and to persuade them of the quality of our services and products.”
This in turn, he added, would enable Liechtenstein’s banks and institutions to provide a “long-term perspective” in a business environment otherwise characterised by “constant change”.
Some of those involved in enabling UK taxpayers to submit LDF disclosures believe the latest new minimum could end up actually putting some would-be LDF candidates off of going ahead with a disclosure, and that it is also likely to discourage rather than encourage people to keep assets there once their disclosure has been completed.
Among them is LDF expert Frank Strachan, who recently joined the London-based Edwin Coe law firm as partner and head of its cross-border tax unit.
“When you start imposing minimum asset requirements on people, you risk alienating those who could potentially be excellent clients going forward,” Strachan said.
“The LDF, from Liechtenstein’s perspective, provides it with the opportunity to receive new funds under management, and to demonstrate to their new clients that it could be a destination of choice for future wealth management. The imposition of the revised minimum requirements [in order] to receive a ‘Confirmation of Relevance’ could be perceived by some as suggesting that they don’t have the confidence in their ability to compete with other jurisdictions as a wealth management centre going forward.
"I suspect that the perception of future clients considering the LDF terms may not react favourably to such a enforced minimum.
“It might have been different if they had done this right from the start, rather than changing the requirements partway through the process.”
Effect could be minimal
John Cassidy, tax investigations partner at PKF (UK), said the new minimum asset requirement was not likely to have a major effect, because another option that has always existed has not changed, and some banks eager to attract business might use this to show the existence of a “meaningful relationship” in order to accept LDF deposits.
This option involves the client agreeing to hold the assets with the bank for a minimum of 24 months, and otherwise demonstrating that “an opportunity exists to develop and build a relationship”, he said.
“It [the new minimum] could bring more business to Liechtenstein, though, if it puts an end to a ‘race to the bottom’ that some banks there were having. So it is probably a good thing, in that it finally puts some numbers to it, and make things more certain.
“One remaining question, though, is how the Liechtenstein banks would be able to police the 20% figure, as they will have to open the account and issue the Confirmation of Relevance certificate long before anyone actually knows how much the LDF candidate has got in his undeclared Swiss bank account.
"I’m not saying I expect clients to go around lying to their advisers, but it could be a slight headache for the Liechtenstein banks, as they are going to have to rely on the clients’ honesty, in advance of making the LDF filing, as to how much they have in their undeclared accounts that they intend to declare.”
£3bn may be raised
In June, HMRC reported that more than 2,400 people had come forward to disclose undeclared foreign assets through the LDF, which it said may now bring in as much as three times the £1bn in revenue it was projected to, “from a much larger number of people”, based on the rate at which taxpayers have been filing disclosures.
As of June, the LDF had netted some £363m, the Revenue reported. It released the data on 11 June, hours before the UK and Liechtenstein signed their first-ever double tax agreement.
Liechtenstein agreed to its role in the disclosure scheme because it was seeking to change its banking business model to one based on transparency rather than secrecy, which was beginning to cause problems for the principality with other countries, such as the UK and Germany, whose taxpayers were thought to be using it to hide money.