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Liechtenstein disclosure facility is ‘clarified’

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HMRC and the Liechtenstein Government have signed a second joint declaration concerning HMRC’s five-year Liechtenstein Disclosure Facility (LDF) for people who have undeclared UK tax liabilities.

Last year the parties signed a memorandum of understanding (MOU) which introduced a five-year ‘taxpayer assistance and compliance program’ requiring banks and other financial intermediaries in Liechtenstein to identify account holders linked to the UK.

The parties have now declared that they expect that any ‘new relevant property’ in Liechtenstein that is established specifically to facilitate participation in the LDF will be ‘meaningful and of sufficient value and permanence to reflect the spirit of the MOU’.

‘Liechtenstein is clearly concerned that its banks are being used to provide short term assets for the LDF and this declaration points towards some hardening in what qualifies and what does not, which is helpful,’ said Gary Ashford, RSM Tenon’s Head of Tax Risk.

Experts have observed that the LDF is the most favourable ‘amnesty’ yet announced by HMRC. Writing in Tax Journal (20 September), Richard Clarke and Hannah Foulkes of PwC said the MOU ‘allows people to qualify for the facility by opening a bank account or moving an existing structure/asset into Liechtenstein after the facility had been launched and up to its closure in March 2015’.

They added: ‘The main benefits are that under [the terms of the LDF] HMRC will only go back ten tax years instead of the statutory maximum 20 year period and that it allows individuals with undisclosed UK liabilities to access the favourable terms of the LDF by simply opening an account in Liechtenstein, thus for the first time bringing domestic evasion into such an initiative.’

While there had not been an encouraging start for HMRC, many advisers expected ‘a new wave of people coming forward later this year’ to participate in the LDF.

The second declaration includes further clarification on ‘relevant property’ under the LDF, the composite rate option, and penalties. The parties also declared that they have started discussions about a comprehensive convention on taxation of income and capital (DTA) as a part of the continued co-operation in relation to tax matters. ‘The DTA discussions will consider the incidence of double taxation, transfer pricing issues, and tax obstacles or areas of mutual cooperation.’

The International Tax Enforcement (Liechtenstein) Order, SI 2010/2678, made on 10 November, brings into effect an agreement for the exchange of information.

Announcing this week’s declaration, HMRC said the parties had signed up to the next stage of a ‘ground-breaking tax agreement’. The item on its What’s New page was titled ‘Liechtenstein tax agreement goes from strength to strength’.

Ashford added that ‘all eyes are on negotiations with Switzerland’ to see whether an agreement similar to the LDF will be announced shortly.