Second Joint Declaration, Government of Liechtenstein and HMRC.
"Barely one year after the Liechtenstein Disclosure Facility was introduced, HMRC is changing the goal posts. Take-up so far has been low, circa 2,000 people, so one wonders whether or not this new more expensive regime will encourage more people to come forward."
"My view is that this revised regime should alert individuals who have not considered regularising their UK tax positions to come forward as soon as possible, as they are likely to find their Liechtenstein assets much reduced come 2015 and they will also have a very definite threat of prosecution hanging over them should they choose to bury their heads in the sand," says Sue Holmes, head of Tax Investigations at Smith & Williamson, the accountancy and financial services group.
Ms Holmes provides further details on the recent changes to the LDF below.
Following the issue of the Memorandum of Understanding (MOU) Relating to Cooperation in Tax Matters in August 2009, a second Declaration was issued on 11 November 2010. There was no prior notice of this Declaration, it merely appeared on HMRC's website.
This second Declaration clarifies some areas of confusion surrounding the MOU but it also introduces some fairly significant changes/ implications. These are highlighted below:
- Any new relevant property established in Liechtenstein, specifically to facilitate participation in the LDF must be meaningful and of sufficient value and permanence, to reflect the spirit of the MOU. These terms are not further defined but one would expect these to mean that Liechtenstein financial intermediaries will require prospective customers to invest large sums, for the long term and in the Principality.
- It is no longer possible for persons to open bank accounts in Liechtenstein, where they did not already hold an offshore bank account in another jurisdiction on 1 September 2009, and be eligible for the 10 year limitation period, fixed 10% penalty or the composite rate option. This is a complete move away from the original regime where persons, even if they did not already hold an offshore account, could open an account in Liechtenstein and benefit from the LDF regime.
- HMRC has signified that the 10% penalty limit is only available until 5 April 2009. After this date penalties will be calculated in accordance with legislation and thus the minimum penalty which will be levied is 20% and could in some circumstances be higher.
- Similarly the 40% composite rate option is also only available until 5 April 2009. HMRC will consider after the end of each year whether a single charge will apply and publish details at the appropriate time.
- There is clarification on the tax treatment of Foundations and Anstalts and whether these are to be treated as companies of trusts for UK tax purposes. This is in fact a helpful clarification as these particular entities have caused confusion in relation to UK tax treatment and the calculation of tax liabilities.
- There is a sting in the tail for persons who do not comply with the five year assistance programme and regularise their UK taxation position. If the Liechtenstein intermediary continues to provide services, and in most cases it will need to sever its relationship, the intermediary will be required to calculate a "Retention" based on the market value of the relevant property, to which varying stipulated percentage rates are then applied. The Intermediary is authorised to liquidate part, or all, of the relevant property to cover this retention. The retention is then to be converted into a certificate of tax deposit which can only be credited against UK tax liabilities when that person makes his disclosure to HMRC. If this is before 31 March 2015 the full terms of the LDF will apply.
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