The UK has signed a landmark Tax Information Exchange Agreement (TIEA) with the notoriously renowned tax haven of Liechtenstein. It marks an historic breakthrough in the global quest to stamp out
The UK has signed a landmark Tax Information Exchange Agreement (TIEA) with the notoriously renowned tax haven of Liechtenstein. It marks an historic breakthrough in the global quest to stamp out tax evasion. UK taxpayers with secret accounts in Liechtenstein will no longer be able to escape the UK tax net.
Around 5,000 British residents have a staggering ?3 to ?5 billion hidden in the Alpine principality and HM Revenue & Customs (HMRC) is expecting to reap in around ?1 billion from this latest coup. The haul will help to boost the Government finances that have been depleted through the economic crisis.
Account holders are being provided the opportunity to voluntarily inform the taxman about their accounts through the Liechtenstein Disclosure Facility (LDF). This is seen as more favourable than the recently announced New Disclosure Opportunity (NDO) open to all UK taxpayers with undisclosed offshore accounts.
The day following the TIEA agreement the UK?s Tax Chamber of the First-tier Tribunal ordered 308 banks to supply HMRC with details of their offshore account holders. The timing of the ruling allows notices to be issued to the banks ahead of the NDO. HMRC said it will use information obtained to ?ensure everyone pays the right tax and to check that NDO disclosures are complete.?
Main points of the LDF are:
? The LDF will run from 1st September 2009 until 31st March 2015 – almost a five year window for those with complex structures to sort out their tax affairs with HMRC.
? The penalty on unpaid tax will be capped at 10% providing a full disclosure is made for tax evaded over the ten years up to 5th April 2009.
? Taxpayers can elect for a 40% flat tax to cover all UK taxes such as income and inheritance tax without any reliefs or deductions.
? Back tax plus interest and the penalty will be due.
? Those who fail to make a full disclosure by the end of the LDF will have their Liechtenstein accounts closed.
? To take advantage of the LDF from September this year, investors must have accounts in Liechtenstein on 1st August 2009. If investments or assets are moved into Liechtenstein after that date investors can disclose from 1st December 2009 when the registration period for the NDO closes.
? Liechtenstein financial intermediaries will have to review all clients, identify those who need to confirm their tax position with HMRC and advise them to do so within a specific time frame. Where a UK investor tells the intermediary that they are co-operating with HMRC, the financial intermediary can continue to provide financial services to that person.
? Investors who move their money from Liechtenstein without notifying HMRC would risk discovery under anti-money laundering rules.
Financial Secretary to the Treasury, Stephen Timms, welcomed the measure: “Today?s agreements are very good news for honest taxpayers and investors everywhere?they represent a big step forward for tax transparency.?
HMRC Permanent Secretary for Tax, Dave Hartnett, commented:
?Those who have been evading UK tax on assets held in Liechtenstein banks must now settle with us. There are no alternatives.
“To resolve this as quickly as possible we will cap penalties on unpaid tax for those coming forward to make a full disclosure. Those who make the mistake of ignoring the Liechtenstein Disclosure Facility will have their accounts in Liechtenstein closed and face penalties of up to 100% when HMRC catches up with them.?
A statement from HMRC said that the TIEA ??will enable the UK and Liechtenstein to exchange information to ensure the right tax is paid in each country in future.? HMRC added: ?Together the TIEA and the disclosure programme provide a unique structure designed to tackle past and future tax liabilities for UK clients of Liechtenstein financial services?.
The UK Government expects that UK residents with accounts in Liechtenstein will be meeting their UK tax liabilities within five years.
The TIEA was signed on 11th August by Timms and Liechtenstein Prime Minister, Klaus Tschuetscher, who said: “With this agreement we are creating a stable and reliable regulatory framework and for the client the possibility to make use of an attractive option.”
The UK-Liechtenstein TIEA goes further than similar accords agreed with the US and Germany. It goes beyond the basic Organisation for Economic Co-operation and Development?s (OECD) standards and could serve as a model for future TIEAs.
Liechtenstein was catapulted into the tax haven limelight in February last year when an informant sold stolen data on hidden accounts. Many German, UK and US residents were exposed.
In May, Liechtenstein was removed from the OECD?s blacklist of ?unco-operative tax havens? after committing to implement the OECD?s standards on tax transparency.
Director of the OECD?s Centre for Tax Policy and Administration, Jeffrey Owens, praised the agreement:
?The announcement shows that the era of bank secrecy as a shield for tax evaders is coming to an end. This confirms Liechtenstein?s willingness to position itself as a legitimate financial center which is prepared to compete on the basis of the services that it provides.
“It also shows that OECD countries are increasingly recognising the benefits, in this changing environment, of voluntary compliance strategies that encourage taxpayers to come forward and declare income and assets held offshore. I am particularly pleased about the innovative and co-operative design of this joint UK-Liechtenstein initiative which may well serve as a model for other countries.”
This is possibly just the beginning of many more TIEAs being signed between countries in a bid to eradicate worldwide tax evasion. Other renowned tax havens like Monaco could well be next ? after all, who would have thought that the infamous tax haven of Liechtenstein would open its arms to tax compliance? It is also more than likely that other countries will initiate voluntary disclosure programmes to help tax evaders put their affairs straight.
Holding hidden bank accounts and assets in offshore financial jurisdictions is an unnecessary and risky business. Legitimate and effective tax planning is the way forward and an established international tax and financial adviser such as Blevins Franks can help you set up tailor made investments to suit your specific circumstances.
By Bill Blevins, Managing Director, Blevins Franks
17th August 2009