Offshore
EXCLUSIVE: Use Liechtenstein Disclosure Facility Sooner Rather Than Later, Its Architect Says

Recent moves by the UK to tighten up a disclosure facility with Liechtenstein, are a sharp reminder that people with unresolved tax issues should act sooner rather than later, its chief architect warns.
Recent moves by the UK to tighten up a disclosure facility with
Liechtenstein, the tiny European state, are a sharp reminder that
people with unresolved tax issues should act sooner rather than
later, its chief architect has told this publication.
Just over a week ago, HM Revenue & Customs said some people
trying to use what are called Employment Benefit Trusts to avoid
tax (see this story here) have sought to use the Liechtenstein
Disclosure Facility - under which individuals with undeclared
offshore assets can regularise their tax affairs - to find
another route to pay less tax. The LDF was signed in August 2009,
and was originally designed to run from 1 September 2009 to 31
March 2015 but it has been since extended to 5 April 2016.
HMRC and the Liechtenstein government have changed this facility
so that users of EBTs that are caught by the Disclosure of Tax
Avoidance Scheme rules cannot take advantage of the full terms of
the LDF.
“Generally, it should be expected that when you have these types
of arrangements, over time they aren’t going to become more
liberal. People need to move sooner rather than later,” Philip Marcovici, a
lawyer who led the process of crafting the LDF, told
WealthBriefing. (He is also a member of this
publication’s editorial advisory board and is now based in Asia
most of the time, at his firm, marcoviciasia.com, as well as
being an adjunct professor at Singapore Management
University.)
“As a rule, such disclosure arrangements become tougher over time
– with the possible exception of voluntary disclosure in the US,
where recent changes to the offshore voluntary disclosure system
has made things easier for many,” he continued.
He said the LDF remains “highly attractive” and a window that
will not remain open forever.
“I’m very pleased to see that it has been a success not just for
the UK and its revenue authority but for Liechtenstein and the
firms that have used the LDF. Even more important is how valuable
the LDF has been for wealth owners who have taken advantage of
its attractive terms and ease of use,” he said.
In the past, Marcovici and others have argued that other offshore
jurisdictions, such as Switzerland, should have emulated the LDF
in sorting out rows about undisclosed bank accounts so that the
financial industry can regroup and move on.
LDF
Under the LDF, Liechtenstein banks and other intermediaries must
identify “relevant persons” - accounts with UK addresses which
might have UK tax liability - and contact them about their tax
affairs. These persons must then register with HMRC and say they
wish to use the facility and provide their financial institution
with a relevant certificate.
Those with assets already in Liechtenstein can voluntarily
disclose without being contacted by a financial institution. Once
registered under the LDF, an individual has a period of time to
explain their position to HMRC. According to the HMRC website
explaining how it works, "You will have 18 months from the date
you receive notification from your FI to satisfy them that you
have complied with your UK tax obligations". Tax liabilities
declared under the LDF only need to cover the timeframe after 6
April 1999 rather than the standard 20-year assessment period – a
reason why the agreement is seen as relatively liberal.
Also, when under a tax investigation, an individual could be
exposed to 20 years of back taxes plus interest, a potential 100
per cent penalty or criminal prosecution. However, under the LDF,
there is normally only a 10 per cent penalty as well as assurance
that no criminal investigation will be initiated.