Liechtenstein, UK Sign Second Joint Tax Declaration

by Ulrika Lomas, Tax-News.com, Brussels

16 November 2010

Liechtenstein and the United Kingdom have signed a Second Joint Declaration, further clarifying the Memorandum of Understanding on cooperation in tax matters and supplementing the First Joint Declaration on related matters that have been agreed by both parties.

According to Liechtenstein’s administration, the basis for bilateral cooperation is an agreement signed in Vaduz on August 11, 2009, which enables UK clients of the Liechtenstein financial centre with undeclared assets to regain tax conformity. The principality’s administration emphasizes that this is achieved under fair and attractive conditions for UK clients, and for the financial centre, as well as for the UK tax authority.

The administration explains that included with the agreement so far are a Memorandum of Understanding and a First Joint Declaration, setting out the modalities for implementing the treaty. In the Second Joint Declaration, Liechtenstein legal entities and structures are characterized to provide certainty in relation to their treatment under UK tax law.

It has also been agreed, the administration continues, that any new relevant assets established specifically to facilitate participation in the Liechtenstein Disclosure Facility (LDF) will be meaningful and of sufficient value and permanence to reflect the spirit of the Memorandum of Understanding.

According to Liechtenstein’s Prime Minister Klaus Tschütscher: “The treaty and the implementing agreements concluded underscore that Liechtenstein is a credible treaty partner”, adding that: “We offer persuasive achievements and services, creating long-term prospects for all UK taxpayers”.

According to the administration, the agreement between Liechtenstein and the UK provides a client-oriented approach to tax cooperation and to the treatment of past cases of non-compliance with tax obligations.

The administration reveals that in parallel with the UK disclosure facility, a Taxpayer Assistance and Compliance Program (TACP) has been established for Liechtenstein financial intermediaries, which is also due to last for five years. Liechtenstein has transposed this program into its domestic law, and the government has issued an implementing ordinance and published commentaries clarifying the fact that financial intermediaries have until September 30, 2011 to perform the necessary identification of affected clients.

The administration states that: “Together with the Liechtenstein Disclosure Facility, the TACP represents a win-win-win situation that benefits individual UK taxpayers, the Liechtenstein financial centre, and the UK tax authority. The experiences and progress so far show that these goals are being achieved. Both sides are committed to the further success of the arrangements, regardless of other possible arrangements with third parties.”

Commenting on the Second Joint Declaration between Lichtenstein and Her Majesty’s Revenue and Customs (HMRC), Gary Ashford, at National Head of Tax Risk, Disputes and Investigations at RSM Tenon, said:

"The agreement not only demonstrates a long lasting commitment between the two countries, it provides clarification on the audit and review process. Of note is the clarification on qualifying property being meaningful and of sufficient value and permanence. Liechtenstein is clearly concerned that its banks are being used to provide short-term assets for the LDF and this declaration points towards some hardening in what qualifies and what does not which is helpful.

"However, we are surprised by the low number of disclosures to date. We would have expected more than the 876 disclosures up until September 30, 2010. However, as we enter the phase where Financial Intermediaries start to have to audit clients and require clients to demonstrate UK tax compliance we expect the numbers to start to increase significantly to help HMRC achieve the GBP1bn target it set.

“The LDF is taking on greater emphasis and all eyes are on the current UK negotiations with Switzerland to see whether a similar agreement will be announced shortly.”

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