On September 29th in Liechtenstein respectively on October 11th in London the long-expected Second Joint Declaration Concerning the Memorandum of Understanding Relating to Taxes between Liechtenstein and HMRC has been signed. This declaration builds on the success of the MOU and the First Joint Declaration signed on August 11 2009 and further clarifies matters that have been agreed by the parties.
And this is, how it all began: Liechtenstein, who has followed the policy of a strict professional secrecy over the last 90 years or more and never ever gave information away in the sector of tax matters has made a declaration on 12 March 2009 that from this date on Liechtenstein will cooperate in tax matters according to the OECD and international standards and help prosecuting people who do not pay or declare their taxes in other states correctly, the so called "Liechtenstein Declaration". Since that time and up to now 12 Tax information exchange agreements (TIEA) and four double tax treaties with information exchange clause have been concluded. One goal for Liechtenstein was to negotiate a regular double tax treaty after showing that cooperation in tax matters is possible. With many states negotiations on this concern have started already, at the moment Germany and Austria are mentioned in the press.
With most of the states information will be exchanged as early as from 1 January 2010. The most favorable agreement has been reached with the United Kingdom (UK), leaving time until 31 March 2015 to become tax compliant. Requests concerning tax fraud may be made for actions after 1 January 2010 though.
Together with the treaty a memorandum of understanding has been signed with the English tax authorities and a joint declaration of both governments completes the package. The goal of these agreements is to have no undeclared funds deriving from taxable sources in GB remaining in Liechtenstein by 2015. The Memorandum of understanding (MOU) offers an interesting possibility of tax disclosure for persons with a connection to Liechtenstein (which has started in September 2009 for persons that had a Liechtenstein connection then). Even other persons may make use of this disclosure procedure from December 2009 on, simply by transferring part of their structures to Liechtenstein. There will be a tax on the last 10 years (respectively on all years after and including 1999) together with interests and (in most cases) a 10 % fine of the tax payable. There is also the possibility of paying a composite tax rate of 40 % for all possible taxes together for a UK tax year, if several taxes (like income tax and inheritance tax ..) are involved. This disclosure facility might be very interesting for several clients. In our opinion it is also a good opportunity because it leaves a chance that some of the assets will stay in Europe and not be moved to far-away jurisdictions.
And these are some of the news of the Second Joint declaration:
Goods moved to Liechtenstein after September 2009 have to be substantial to qualify for the LDF. There are three conditions which ought to be met: There must be a personal relationship between the financial intermediary and the client, the client relationship has to be a long-term relationship and the services provided in Liechtenstein must be relevant services. Alternatively it has to be a substantial part of the assets which are disclosed , that is invested or administered in the Principality of Liechtenstein. The Liechtenstein professional associations may create guidelines to specify these details for their respective members. Up to now only the Liechtenstein banking association has done so.
Another precision is, that the composite rate will still be available for the years after 2009, anyhow the amount of this composite rate will be determined by HMRC on a yearly bases. The same will apply for the tax fines and penalties. That means that the 10 % penalty rate is available only for the years 1999 to April 5, 2009. For the years after this date the fine will be determined regarding the question whether reasonable diligence has been observed or not. If the relevant person is totally cooperative and discloses all relevant facts completely the minimum fine will be applicable. Examples and frequently asked questions shall be available on the homepage of HMRC.
On September 1st 2010 the Liechtenstein Law Concerning Administrative Assistance in Tax Matters with the UK and Northern Ireland went into force. On the same day an Ordinance regarding this law went into force. In this Ordinance it has been specified that until September 11, 2011 all clients with an English tax background must be identified by the Liechtenstein financial intermediaries. This certainly is a step towards tax compliance and an important change in the Liechtenstein policy. The chances for new long-term business contacts are still interesting and these expectations hopefully will be met.
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.