UK taxpayers with undeclared offshore assets who are planning to come forward under the New Disclosure Opportunity tax ‘amnesty’ will not be able to halve their liability period by moving their wealth to Liechtenstein, which has agreed a less harsh disclosure regime, HMRC has confirmed.
“The [Liechtenstein Disclosure] facility is only for new or existing investments at 1 August 2009,” an HMRC spokesman said.
Accountants had been seeking clarification on the matter ever since an information-sharing deal and tax amnesty programme between the UK government and Liechtenstein was announced last week.
Under that agreement – which was considered a landmark given Liechtenstein’s longstanding reputation as a secretive tax haven – customers of its banks would enjoy less onerous terms under the so-called LDF than those whose undeclared assets were stashed in other offshore jurisdictions, and who thus are eligible for HMRC’s recently announced New Disclosure Opportunity (NDO).
Penalties on unpaid tax will be capped at 10% of the amount of tax evaded over the last decade under the Liechtenstein disclosure programme, whereas the NDO requires individuals to declare the unpaid tax for the past 20 years. Also under the NDO, some people may also be liable for a 20% penalty, which is not the case for Liechtenstein depositors.
Both tax disclosure programmes kick off next month, with the NDO running until March 2010, and the LDF for five years.
As many as 5,000 British taxpayers are believed to have as much as £3bn in secret accounts in the German-speaking micro-state, which is sandwiched in the Alps between Switzerland and Austria.
Whistleblower
The country has been under pressure to become more transparent ever since a whistleblower from its largest bank, Vaduz-based Liechtenstein Global Trust, sold the details of hundreds of account-holders to German tax authorities.
John Cassidy, tax investigations partner at PKF, said he and his colleagues “spotted the discrepancy [between the LDF and NDO] straightaway” and since then had been looking for clarification, because the London-based tax accountancy’s customers expect to be kept informed about all the legal options available to them.
He said he continues to regard 10 years as a preferable disclosure time period to 20, which will discourage people from coming forward and thus reduce HMRC’s takings.
“Anecdotal evidence suggests that the 20-year time limit had a hugely negative impact on the overall amount of tax that HMRC collected for the previous amnesty, the Offshore Disclosure Opportunity (ODF) in 2007, as many were put off by the sheer enormity of the project; 20 years was simply seen by many as too daunting,” Cassidy said.
The special terms of the Liechtenstein agreement “only provides a further disincentive for those supposed to use the NDO simply because they banked in a different place,” he added.
Possible precedent
Some tax experts believe that certain countries that are still in the process of negotiating the terms of their tax information exchange arrangements with Britain may seek a similar deal to the one Liechtenstein got with HMRC.
Among them is the Chartered Institute of Taxation’s Tax Policy Director John Whiting, who added: "It will also be interesting to see whether and to what extend countries like Germany and France follow the UK’s lead in signing something with Liechtenstein – or indeed whether this becomes a general EU arrangement."
Grant Thornton senior manager of national tax investigations Frank Strachan said the bottom line for UK investors with undisclosed tax liabilities was that “the net is tightening” and that those with “historic problems” should seek advice to deal with them now through the amnesty programmes, “however nasty the nettle may be to grasp”.
“The offshore investment market is still a worthwhile consideration for those who can demonstrate the source of funds invested and are prepared to disclose their income/gains arising,” he added.
