HMRC adds ‘meaningful connection’ clause to Liechtenstein amnesty scheme
From Tax & Regulation Nov 21 2011 BY: Helen Burggraf
, Contributing Editor
, International Adviser
HM Revenue & Customs has added a requirement that individuals looking to use the Liechtenstein Disclosure Facility provide greater proof that they have a “meaningful connection” to Liechtenstein than was previously necessary.
From 1 Dec, HMRC will be looking for this proof in the form of a “confirmation of relevance” from the financial intermediaries of UK taxpayers seeking to make a declaration through the LDF, the Revenue says, in an amendment to an existing frequently asked questions document that supplements the main LDF memorandum of understanding.
“With effect from 1 Dec 2011, you will need to provide this to HMRC at the point of registering for the LDF, and HMRC will not be able to admit registrations without the confirmation of relevance from that date,” the HMRC amendment, dated 11 Nov, adds.
“Although no financial limits are set by HMRC, financial intermediaries are expected to apply minimum investment levels or other qualifying terms.”
Liechtenstein concern
HMRC’s addition of the ‘meaningful connection’ phrase to its FAQs is being viewed as a sign that Liechtenstein’s wealth management industry is concerned it could lose funds, and clients, once those individuals who moved assets to the country's banks and financial institutions have finished taking advantage of the LDF terms, notes Frank Strachan, head of tax at London law firm LSG Solicitors.
“Liechtenstein wealth management firms want higher levels of funds under management, so that they can demonstrate their capability to successfully manage such funds, but our experience is that LDF cases are concluded so swiftly that the Liechtenstein financial institutions don’t have sufficient time to demonstrate such capability,” Strachan adds.
“Higher investment entry points provide Liechtenstein with a greater chance of developing itself [as] a credible long term wealth management centre long after the LDF is consigned to the history books.”
The LDF is a tax “amnesty” that was conceived by HMRC, in cooperation with Liechtenstein’s government, to encourage UK taxpayers with undisclosed offshore accounts to formally declare them, in exchange for a relatively less severe penalty than they would face if they came forward in the UK, or were found out by the increasingly-aggressive HMRC investigations team.
Not new
The concept of having to show a “meaningful connection” to Liechtenstein in order to make a disclosure under the LDF is not new, but dates back to 2009, when the scheme was launched.
Earlier this year, HMRC clarified that it regarded this as meaning that a taxpayer seeking to make a disclosure under the facility would entrust a minimum of 5% of his or her assets in a Liechtenstein financial institution.
Evidently aware that it might seek to change the required minimum, HMRC has said that disclosures made under terms that required a lower investment minimum would not be affected if that minimum amount were later raised, as it apparently is doing.
FAQs
In addition to adding the new “confirmation of relevance” requirement, HMRC has also added eight new FAQs, numbered 3.6 through 3.11. These have to do with queries that might arise in connection with the new confirmation of relevance, such as, “if I register before 1 Dec 2011 will HMRC require a confirmation of relevance?” (to which the answer is “no, but we will require evidence that you have relevant property in Liechtenstein”).