Advisers have urged HMRC to clarify details of the Liechtenstein Disclosure Facility (LDF), amid claims tax cheats could switch assets to the principality to secure less punitive treatment than under a separate, high profile offshore ‘amnesty’.
Their calls follow a series of apparently contradictory messages and statements coming out of HMRC relating to an apparent loophole in the operation of the New Disclosure Opportunity and sister initiative, the LDF.
These relate to how the Revenue plans to handle declarations of offshore assets moved to Liechtenstein since a ‘tax amnesty’ programme there was announced last week and have left UK tax experts more bemused than enlightened.
Most agree that HMRC failed to spot the possibility that taxpayers with undisclosed offshore accounts might consider moving them to Liechtenstein when it announced the so-called Liechtenstein Disclosure Facility (LDF), which offers a less harsh disclosure regime than HMRC’s previously announced New Disclosure Opportunity (NDO).
Several UK tax experts believe further and clearer guidance is likely to be forthcoming shortly from HMRC – particularly as the start date for filing notifications of intention to disclose is 1 September for both amnesty programmes.
However, some suggest that the matter could be complicated by an unwillingness on HMRC’s part to upset authorities in Liechtenstein, a historically secretive Alpine tax haven that is believed to have sought a better deal than other jurisdictions are getting in exchange for its cooperation.
Confusion
The confusion arose after it appeared that UK taxpayers with undeclared funds in offshore accounts, who were planning to come forward under the NDO, might be able to reduce their liabilities by moving their wealth to Liechtenstein first and declaring under the LDF instead.
In response to a question from International Adviser on Tuesday, HMRC originally said that the LDF was “only for new or existing investments [in Liechtenstein] at 1 August 2009”.
Today, however, again in response to an IA query, HMRC said individuals with investments that have been made directly with offshore financial intermediaries “will be able to move their money to Liechtenstein after the end of the registration period for [the] NDO, and then use the full terms of the Liechtenstein disclosure facility”.
In other words, tax experts said, individuals who had undeclared tax owing on funds kept offshore – but not in Liechtenstein – for the past 20 years would appear likely to benefit by waiting until the registration period for the NDO ended, on 30 November, and moving the money to Liechtenstein, where they would be liable only for 10 years of unpaid tax.
Once there they would also be able to take advantage of a 10% cap on the penalties they would owe HMRC under the Liechtenstein amnesty programme. (Under the NDO, some individuals would be liable for a penalty equal to 20% of their unpaid back taxes.)
In its statement today, HMRC said: “HMRC has the legal power to obtain information on investments where they have been opened through a UK branch or agency – say a branch of a bank in the UK. Anyone with investments of this sort could move their investments to Liechtenstein after the end of the registration period for NDO, and use the Liechtenstein disclosure facility. But they will get the same terms as the NDO.
“People with investments they have made direct with offshore financial intermediaries will be able to move their money to Liechtenstein after the end of the registration period for NDO, and then use the full terms of the Liechtenstein disclosure facility.
“They will of course have to disclose everything to HMRC in that case, or the new Liechtenstein laws will mean that they have to remove their investments or face sanctions.”
Memorandum of understanding
John Cassidy, a partner in the PKF tax consultancy, said he sought clarification on an undated, 29-page memorandum of understanding between the Liechtenstein government and the UK government “relating to cooperation in tax matters”, which contains a seven-page section on the LDF.
Even after reading this he said the matter remains “a bit of a minefield”, and added: “If [tax advisers] are to help HMRC by persuading people to come forward, we need to have clear and unambiguous details.
“I am not sure why they feel the need to be so coy about the provisions of both the NDO and the LDF, when to be more open would enable us to speak with potential disclosers with authority and hopefully persuade them to come forward.”
Points contained in the memorandum, according to Cassidy, include the following:
• If assets are held in Liechtenstein on 1 September, the LDF can be used from that date.
• If assets are acquired in Liechtenstein after 1 September, the LDF cannot be used until 1 December.
• Those who also have bank accounts outside Liechtenstein can use the LDF, but must still go back up to 20 years for non-Liechtenstein accounts if those accounts were opened through a UK branch/agency of the bank in question. (In other words,if they were opened directly in, say, Jersey then 10 years still applies.)
“The document is totally silent on the effect of moving accounts into Liechtenstein, but HMRC’s most recent comments suggest that any movements into Liechtenstein are subject to the same rules, that is, if the moved account was opened via a UK branch/agency it is still subject to 20 years”, Cassidy said.
“The document also seems silent on what to do if assets are held on 1 September and new ones are acquired after that date, but I think 1 September applies on the basis that this is the default date.”
In the end, Cassidy said, “I suspect the LDF will be a red herring for anything other than a particularly large case or those with Liechtenstein accounts already.”
John Whiting, tax policy director of the Chartered Institute of Taxation, is among those who believes HMRC has yet to issue its final word on the subject, but that when it does, it will eliminate any loopholes.
“It would be a curious result if HMRC’s pronouncements would turn out to be a sales promotion for Liechtenstein’s wealth management industry,” he added.
Grant Thornton senior manager of national tax investigations Frank Strachan said: "HMRC needs to come out and be clear whether it is possible or not to use Liechtenstein as a way and means of reducing the disclosure period from 20 to 10 years."
