The Government of the Principality of Liechtenstein (Liechtenstein) and the Government of the United Kingdom of Great Britain and Northern Ireland (UK) have signed an Agreement on Tax Information Exchange (TIEA) on 11 August 2009. The Government of Liechtenstein and Her Majesty's Revenue and Customs (HMRC) have also signed a Memorandum of Understanding Relating to Cooperation in Tax Matters (MOU) on the same day. The MOU concerns the introduction by Liechtenstein of a five year taxpayer assistance and compliance program as well as the introduction by HMRC of a five-year special disclosure facility for persons wishing to regularise their UK tax affairs.

The TIEA does only fulfil the OECD criteria according to article 26 of the OECD tax convention as from 1 April 2015 on. Before that date, no request will be dealt with if it is not related to criminal tax investigations or to UK persons applied for any of the disclosure facilities (ODF, NDO, LDF) in the last months/years.

The Government of Liechtenstein and HMRC have generally agreed on the written guidance and approach concerning companies, Trusts and Foundations for purposes of the MOU as detailed in the appendices to the declaration. HMRC will confirm the generally agreed guidances. For avoidance of doubt, nothing contained in appendices is to affect the ability of affected persons to rely on UK law or practice permitting alternative characterisation, recognition and treatment. The ultimate UK taxation consequences for UK taxpayers will depend on the particular facts as is the case where UK or other common law entities or fiduciary relationships, such as Trusts, are involved.

Trusts ("Treuhandschaften") and Foundations ("Stiftungen") are characterised, recognised and treated as trusts for UK tax purposes within the frame of the above comments.

We will discuss a practical case in order the reader understands how the LDF could work.


A Foundation set up in 1998 (UK domiciled settlor and beneficiaries) in Panama with a bank account in Switzerland wants to participate in the Liechtenstein Disclosure Facility programme (LDF).

The beneficiary has a claim on assets and income. According to the By-Laws, the first beneficiary can direct the Foundation Council. The first beneficiary can instruct the Foundation Board to amend the By-Laws.

No additional mandate agreement is to be considered.

Under which conditions can the client participate?


  1. Eligible person means a person who is considered to have any liability to UK tax in respect of relevant property [Schedule 1 of MOU, paragraph 1(e)(i)].
  2. Relevant property means a .... Foundation ... founded, settled, incorporated, administered, or managed in Liechtenstein [Schedule 1 of MOU, paragraph 1(p)(ii)].
  3. A person eligible for the LDF must disclose all and any assets and income in respect of which UK tax may apply [Schedule 7 of MOU, paragraph 2].
  4. The LDF will not only cover the Foundation, but any offshore assets of the relevant person. So not only the relevant property.
  5. The first beneficiary has a claim to assets and income. So it could be argued that it is tax transparent.
  6. Any person already under investigation by HMRC as of 11.8.09 cannot participate in the LDF.
  7. A person who participates in the LDF and has a bank account outside of UK and FL which is in his/her name and was opened through a UK branch or agency of that bank, will not, in relation to that account, be eligible for the shorter limitation period, the fixed penalty and the composite rate option (e.g. relevant for endowment from UK-branch into Foundation from 6.4.99 on).
  8. The Foundation Board should be resident (majority) in Liechtenstein. The right to dispose of assets at the Swiss bank account should be only with the Liechtenstein Foundation Board. Under these provisions, the structure can participate. So no redomiciliation needed, no change of bank needed.
  9. The voluntary disclosure is available for the person subject to and/or obliged to pay any taxes as determined by the tax laws of the UK as at 1.12.2009 (as relationship started after 1.9.09). It is not the Foundation Board. So it refers to the settlor/founder and/or beneficiaries. The person will notify HMRC according to Schedule 4 of MOU.
  10. In this context it will be the first beneficiary (probably also the founder/settlor) and/or any other person being able to request amendment of the By-Laws. It will also be any person entitled to 25 % or more of its income or capital; or any person who has received a distribution in a given UK tax year, in total amounting to GBP 5'000.00 or more from such entity since 1.8.2009 (or GBP 25'000.00 in case of provision with benefit) [Schedule 2, paragraph 1(a)-(e) of MOU].
  11. The respective person will send to the Liechtenstein financial intermediary a certified or legalized copy of the HMRC registration certificate [Schedule 4, paragraph 3 of MOU].
  12. The respective person will together with the Liechtenstein financial intermediary prepare all that is necessary to calculate the taxes [Schedule 4, paragraph 4 - 5 of MOU]. After payment, HMRC will issue a registration certificate containing such information. The certificate must be handed over to the Liechtenstein financial intermediary (or certified / legalized copy thereof).
  13. Panel: In certain exceptional circumstances, matters can be reviewed by a special panel to be created by the Liechtenstein Government in an attempt to find reasonable approaches to compliance or exit.
  14. Composite Rate (CRT): It provides the possibility of a taxpayer to opt for the application of composite rate of taxation that replaces entirely all UK taxes that could otherwise apply including, without limitation, UK national insurance contributions, inheritance, income, corporation, capital gains, stamp duty, VAT. This can not only simplify the process of voluntary disclosure but can result in very meaningful tax savings especially in cases involving companies, trusts and other structures. In both cases a penalty of 10 % and interest on arrears.
  15. Assistance: Liechtenstein clients and intermediaries can through a bespoke service established in UK (note: any LDF must go via the Liechtenstein intermediary, regardless of the fact that the UK client often has only a relationship with a Swiss intermediary and does not know the Liechtenstein financial intermediary) guide themselves through the disclosure facility and navigate through the UK tax system generally:
  1. HMRC can by contacted anonymously at the initial stages: Via a professional advisor, the financial intermediary is involved to discuss with HMRC the circumstances of the eligible person on a "no name" basis;
  2. HMRC fulfils its obligations within 6 months where it is practical;
  3. HMRC accepts offers for tax based estimates; instalments; the timing of the sale of assets belonging to or available to the eligible person to fund the payment of tax payable to the HMRC.

Potential Taxation

Let us assume that the settlor or spouse are first beneficiaries, so the Foundation may be considered like a "bare trust".

Any amount in the structure before 6.4.1999 will be treated as capital as at 6.4.1999 and there will be no tax on any income/gain before that date. The income of the Foundation since 6.4.99 must be taxed with 40 % CRT (or exact tax amounts according to year). The realised capital gains are taxed with 40 % / 18 % (calculation needed as depending) (or 40 % CRT). The distributions are not taxed. There will be no estate tax (transparent).

The endowments (after 5.4.99) are taxed with 40 %, if it cannot be proven if paid from capital which was originally properly taxed. Or inheritance tax may apply if transferred from an estate. If the CRT-option is taken, such endowments, if proven to come from undeclared inheritance or capital will not be taxed as included in the CRT-option. Under the CRT, there will be no separate inheritance tax (e.g. on capital transfer) imposed in respect of the UK tax years covered under the CRT.

This example shows that it cannot be properly established if effective calculation or the CRT option is the better choice. Careful planning is needed.

A 10 % surcharge and interest on arrears must be added. The 10 % are added to the total of tax calculated without interest. The interest is calculated on each year's tax amount, based on the interest rates given by HMRC annually. So under CRT-option the final tax may arrive at around 46 %.

If CRT-option is taken, it must be considered that the rate may be 50 % as from 6.4.2010 on for the period starting as at 6.4.2010. The taxable person must also take into account that the interest on non-paid taxes is calculated until the payment is effected, so the LDF registration does not stop the interest calculation. This can only be stopped by a payment on account (on the amount paid to HMRC).

Further costs will be for accounting/handling in Liechtenstein and for the UK accountant/tax advisor.

The information gathered in this article is based on the knowledge obtained until 12 January 2010.

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.