Liechtenstein: Liechtenstein And The European Union (EU) Savings Tax Directive

Last Updated: 6 September 2006
Article by Roger Frick

Liechtenstein has come to an agreement with the European Union on the EU Savings Tax and will therefore retain the same withholding tax as Switzerland. As everybody expected, Liechtenstein developed within the frame according to what Switzerland has already worked out. Therefore a short look to what has happened in Switzerland is important to understand the treaty and the differences to Switzerland. Switzerland has finished its negotiations on the nine treaties called "Bilaterals II". This article will only focus on the cooperation pertaining to the EU (European Community) savings tax (tax on interest of savings accounts of physical persons living in the European Community).

Instead of an automatic exchange of information between national tax authorities within the EU and relevant states being participants to this directive, Switzerland will withhold a 15 % tax on interest during 3 years. This percentage will be increased to 20 % for another 3 years, and after this period to 35 %. This tax is due thereafter for any interest payments by a so-called paying agent to a physical person with tax relevant domicile in the European Community. 75 % of the retained tax will be distributed by Switzerland to the EU member states.

Liechtenstein will accept these percentages. However it is still not clear, either in the EU or here in Liechtenstein, what exactly a paying agent is. There is much interpretative room left.

It is highly probable that the return on such a savings tax is smaller than the EU expects.

It has to be noted that Switzerland has to all intents and purposes practically given up bank secrecy whenever we talk about indirect taxes like subsidies, duties, VAT, excise tax on tabacco, alcohol or mineral oils. Switzerland already disclosed information before this treaty and has co-operated whenever there has been a fraud or falsification of documents involved (documents, deeds; tax evasion in conjunction with forged documents, money laundering or issuing false invoices). The practice of court rulings in the last years in Switzerland or in Liechtenstein has shown that attempts to avoid indirect taxation was usually accompanied with fraud or falsification, which led to co-operation with the foreign authority and remittance of documents abroad.

However Swiss – and especially Liechtenstein – privacy laws do not accept that foreign tax authorities can move in freely on bank accounts of physical or juridical persons. Here such rights should not be touched and it should be the person's right to decide upon the moment to disclose transactions. It is fully understood that the taxable person reports income and balances on his tax return in full and accurately.

It has to be noted that Liechtenstein is bound to a customs treaty with Switzerland since 1923, and therefore many aspects of indirect taxation and co-operation stipulated by Switzerland have direct consequences on Liechtenstein as well.

Switzerland has amongst others received the right to benefit from the EU directive on interest and licences and the parent-subsidiary directive. Liechtenstein cannot benefit from these two directives.

As counterbalance, Switzerland has accepted the need to improve its bilateral treaties with the EU step by step which leads to the fact that the administrative assistance between competent authorities on tax fraud and similar facts will be extended beyond the clauses in the treaty on EU savings tax. As Liechtenstein has not signed similar treaties, there will be no administrative assistance in the same direction.

It is clear that the EU will request a certain level of assistance from Liechtenstein relating to the EU savings withholding tax. As Liechtenstein only knows legal assistance in criminal matters which involves the court and excludes taxes – apart from that which was said above – this kind of legal assistance will be subject to Liechtenstein internal regulations which means that has also to be a criminal offence in Liechtenstein and that the information is supplied with "limitations on use" (speciality) i.e. that any information or evidence obtained under the treaty may not be used in any investigation, prosecution, or proceeding other than that described in the request without prior written consent. Whatever the contractual arrangements, the Liechtenstein internal law must be respected.

The Liechtenstein Government released in a press communiqué that interest income of Liechtenstein foundations will only fall within the treaty if they are paying agents. They could only be paying agents if they accept, hold, manage or transfer assets of third parties or merely pay interest or secure such interest payments. Interest income on the foundation's assets held and managed on the foundation's own account and in its own name is excluded from the treaty. The interpretation of a foundation to be a juridical person is subject to Liechtenstein legislation.

Liechtenstein as member of the European Economic Area (EEA) will be a solid partner of the EU within the legal context of its privacy laws, and this should also be respected by the EU member states. Liechtenstein cooperates in combatting fraud of any kind, and the numbers and positive results of legal assistance in criminal matters have shown that the EU can count on this support.

Liechtenstein entities open mainly bank accounts in Liechtenstein or Switzerland or Luxembourg or Austria, and all these countries benefit from the option to withhold tax instead of disclosing information between tax authorities. This withholding tax is only applicable if – and only if – payments go to physical persons living in the EU, hence payments to juridical persons are not affected by the EU savings tax directive.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions