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Focus turns to Liechtenstein as accountants report limited take-up of offshore tax amnesty

As the midnight deadline for HM Revenue & Customs’ New Disclosure Opportunity approached today, tax experts said attention was turning to the government’s other, less onerous offshore tax amnesty, f

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As the midnight deadline for HM Revenue & Customs’ New Disclosure Opportunity approached today, tax experts said attention was turning to the UK government’s other, less onerous offshore tax “amnesty”, for those whose undeclared offshore assets are in Liechtenstein – or will be soon.

The Lichtenstein Disclosure Facility (LDF), as it is called, does not expire for five years. The NDO runs until March, but those intending to disclose had to have announced their intention to do so by 12pm tonight.

Most tax experts described take-up of the NDO thus far as muted, which they blamed on lack of publicity about the programme coupled with the appeal of the LDF, which, they say, many people are choosing over the NDO, even if it means moving their wealth to Liechtenstein.

“We were expecting a higher volume of disclosers and we expected larger disclosures as well — HMRC’s message just doesn’t seem to have reached that many taxpayers,” said Grant Thornton UK senior tax investigations manager Frank Strachan, who said the firm expects to submit as few as 100 NDO disclosures.

“A lot of the disclosures were very small indeed – tax bills in the range of £5,000 to £50,000.”

At BDO Llp, “the majority” of clients are choosing to go down the LDF route rather than that of the NDO, according to a spokeswoman, who noted that the money is largely being shifted to Liechtenstein from Switzerland, “but also [from] such offshore places as Panama, Jersey, Guernsey [and] Luxembourg”.

This is in spite of HMRC having said it was planning eventually to offer similar arrangements to the LDF to depositors in other offshore centres. 

BDO partner Fiona Fernie said the preference for the LDO was not surprising, and that HMRC was content for people with undisclosed offshore assets to do this, as it meant that the Revenue would still gain at least some of the back tax owed and, perhaps most importantly, would have the individual’s account details going forward.

“Effectively what people have done, is said, ‘Well, I’ve got money, which should be declared,  and though it might not be in Liechtenstein now, it can be, if it will enable me to pay much less tax,” she said.

HMRC seen to ‘keep its promise’

Strachan said he expects HMRC to keep its promise to aggressively pursue those who it knows to have undisclosed offshore assets, by focusing initially on “the customers of the five UK banks whose details they [HMRC] have”, as a result of notices served on these banks in 2007. The five banks were Barclays, HBOS, HSBC, Lloyds TSB and Royal Bank of Scotland.

Similar notices, known as production orders, were served on an additional 308 banks, including foreign institutions with UK operations, last year.

“They [these banks’ customers] have now had two chances to come forward, and HMRC have had the information [about them] longer” than on anyone else, Strachan said of the first five banking groups.

“It makes sense that if you’ve had the information longer, you’re just going to be sitting on it, waiting. My sense is there’ll be a list somewhere, and that list is going to be compared to the names coming forward under the NDO. Those whose names have not been crossed off might then be expected to receive a letter from HMRC.”

Strachan added that it was “imperative” taxpayers understand that “they do not have to attend” meetings HMRC has said it plans to invite some of those who have not come forward to attend. If they attend these meetings to discuss their accounts, they should have appropriate professional advisers with them.

“They need professional advice and guidance, because a simple, misunderstood response to a question could result in HMRC seeking to assess more tax than may be necessary,” he explained. 

‘Not coming from Jersey’

If the LDF is luring deposits to Liechtenstein away from other jurisdictions, meanwhile, it is not attracting significant sums from Jersey, a spokesman for the island’s banking industry said.

Jersey Bankers Association secretary Martyn Scriven said there had been no reports of a significant number of deposits being moved to Liechtenstein to take advantage of the LDO. “I think my banking industry and trust colleagues would be shouting quite loudly if they were,” he added.

He said the accounts being moved to Liechtenstein were most likely coming from more secretive jurisdictions than Jersey, such as Switzerland.

Swiss banks with UK operations were said to be among the 308 financial institutions affected by last year’s ruling that obliged them to hand over details of customers with offshore accounts. 

As previously reported, the LDF offers UK taxpayers the chance to settle their outstanding tax obligations with HMRC by paying only a 10% penalty, and going back no further than 10 years.

By comparison, the NDO requires individuals to account for unpaid taxes dating back 20 years, and may result in a 20% penalty. Critics have said the same 20-year time period was thought to have been one of the main reasons relatively few came forward during the Revenue’s last amnesty period in 2007.

Those who do not voluntarily come forward through either the NDO or LDF could be hit with fines equal to as much as 100% of the tax they owe, HMRC has said.

A proposal that the fines for those who fail to disclose offshore assets be doubled, beginning next year, was included in Chancellor Alistair Darling’s recent Pre-budget Report.

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