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

Tom Burroughes

25 August 2014

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,” , 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.