UK authorities have agreed a deal with Liechtenstein that offers British tax evaders with bank accounts in the principality limited penalties in exchange for full disclosure.
As part of the Liechtenstein Disclosure Facility (LDF), which was to be signed this morning, the UK will ask Liechtenstein banks to close the accounts of British depositors that fail to disclose.
HM Revenue & Customs said the LDF provides for penalties on unpaid tax to be capped at 10% of tax evaded over the last ten years, providing the taxpayer discloses “everything”.
An estimated 5,000 UK taxpayers are believed to hold around £2bn to £3bn in secret Liechtenstein bank accounts.
The LDF will run from 1 September to 31 March 2015, HMRC said in a statement.
In addition to the LDF, the two countries are also signing a tax information exchange agreement (TIEA) which will enable the UK to obtain banking details of those of its citizens with Liechtenstein accounts in the future.
The signing of the agreement with Liechtenstein – long regarded as one of the world’s most secretive jurisdictions – is thought likely to serve as a model for other secretive financial centres to follow.
It comes a little more than a month before the next meeting of the G20 nations, in Pittsburgh on 24 and 25 September, where it is thought sanctions against those countries that have not yet shown a willingness to participate in the global move towards tax transparency could be discussed.
Liechtenstein Disclosure Facility
“Those who fail to make a full disclosure by the end of the programme will find their accounts in Liechtenstein closed down,” and would face penalties of up to 100% when HMRC eventually does catch up with them, HMRC said, in announcing the LDF.
Financial secretary to the Treasury Stephen Timms said the agreements were “very good news for honest taxpayers and investors everywhere”.
Dave Hartnett, HMRC permanent secretary for tax, added: “Those who have been evading UK tax on assets held in Liechtenstein banks must now settle with us. There are no alternatives.”
Liechtenstein financial intermediaries are being told that they will have to review their client bases to determine those who need to confirm their tax position with HMRC, and advise them to do so within a specific time frame.
Intermediaries may “continue to provide financial services” to UK investors only once these investors have confirmed to them that they are taking steps to comply with the LDF, HMRC said.
Sanctions
“Where a UK investor cannot confirm that they are cooperating with HMRC, the financial intermediary must withdraw financial services [to the UK investor] in Liechtenstein or apply various sanctions”, HMRC said, without explaining what form such sanctions might take.
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, or, if the investments or assets are moved into Liechtenstein after that date the person can participate from 1 December 2009, at the end of the registration period for the New Disclosure Opportunity.
The penalty on unpaid tax will be limited to 10% in most cases on the same basis as the so-called New Disclosure Opportunity, another tax ‘amnesty’ programme currently being launched by HMRC.
The recovery of earlier years’ tax lost will be restricted to a maximum of 10 years up to 5 April 2009, HMRC said.
It noted that taxpayers may elect to apply a special “composite rate” of 40% to cover all taxes on an annual basis without the benefit of any relief or deduction.
HMRC said full details of the Liechtenstein disclosure facility and the text of the TIEA are available on its website, as well as at www.liechtenstein.li
