When the Liechtenstein Disclosure Facility was first offered by H M Revenue & Customs the tax profession said it wouldn't rasie anything like the amount of money the Revenue estimated it would.
I'm still a critic of the scheme: I think it amazing that the UK is actually encouraging people ti use Liechtenstein banks. And I think it equally amazing that wealthy, criminal, tax evaders are getting away with penalties of 10% of the tax that they have evaded when people who have made innocent erros on their tax returns are paying higher penalties. That's wrong.
But what is interesting is that the scheme seems to be working. As Accountancy Age has reported:
It seems as though the Liechtenstein Disclosure Facility is working. The figures obtained by Accountancy Age from a freedom of information request show that the average disclosure yields £300,000.
To put this into context, HM Revenue & Customs originally predicted that the initiative would bring in £1bn from 5,000 predicted disclosures at an average of £200,000 each. Having seen the initial success, it revised this figure to around £3bn. But how likely is it that it will reach this target?
Accountancy Age discusses the issue, at length, noting, in conclusion this:
The Revenue could attract far more individuals if the scheme were publicised more, he says, adding: "The number of registrations is meaningless because we don't know how big the market is. HMRC is very coy about publicising the amnesty. It can easily triple and quadruple the number of disclosures if it were publicised." It is a "political hot potato," he adds, because the public are not happy about tax evaders being given an amnesty.
But they then add, giving the subject a new twist that there are two reasons why take up may be slow at present:
First, individuals are waiting for the deal with Switzerland to be finalised before entering the LDF. HMRC announced in October last year that a deal was being discussed. It has claimed throughout that any Swiss deal will not offer terms as favourable as those on offer.
That's yet another negative to the Swiss deal.
The second reason, which is connected to the Swiss deal and even more important, is that the main thrust of the LDF has not yet begun: the Liechtenstein banks investigating their customers.
This is more important. As one commentator argued as a result:
Current registrations "are the trickle" and "the tap will be turned on" when this phase starts.
There's good reason for that: there's a wall of money out there: vastly more than HMRC are saying they think they'll collect. And it's time to get it. But the Swiss deal doesn't help us do so.
Why, oh why, can't we take the US line?
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Richard
It will really take off when the proposed Swiss/UK deal has been properly analysed in its final form. Its perhaps understandable that those who were thinking of using the LDF (they have until 2015) have wanted to wait and see what was on offer in Switzerland, but it seems unlikely that the Swiss/UK deal will actually legitimise the assets in question, which rather defeats the object.
From my experience, many of the people wanting to use the LDF are elderly, and are trying to make things as easy as possible for their grown-up children who will inherit what’s there, but who know nothing about the undeclared money. The penny is starting to drop that they really should now be regularising their affairs (better late than never).
I’m not so sure that things will really escalate when the Liechtenstein banks investigate their own clients as there are only 13 banks in the principality and none of them are huge. There are many Swiss banks which are bigger than all 13 Liechtenstein banks combined. Its Switzerland where the vast numbers are located.
Harry,
Liechtenstein’s soon gonna have bigger problems on its plate. The amended savings tax directive:-
This means Swiss banks using Liechtenstein structures, such as foundations and establishments, must automatically report interest payments to any structure managed in Liechtenstein, irrespective of the identity of the eventual beneficial owner.. or deduct 35% tax. Rather a draconian imposition, I would say. All those Russians, sheiks and Colombian drug lords are now surprisingly caught up in the EU directive… unless of course, Swiss banks start snitching en masse. So one would expect customers through out the world to flee Liechtenstein entities and legal arrangements.
By the way, Harry, this also applies to all your mid-east, Asian, South African customers using Jersey trusts with bank accounts in Switzerland or Luxembourg.
I was so surprised by this harsh treatment, I had to get double confirmation that this applies to non EU resident beneficial owners.
Problem is, as always, that you conveniently forget that Switzerland is NOT a member state and that exact terms of how it will agree to incorporate the amended EUSD into its own bilateral arrangements with the EU have yet to be negotiated. Expect your example to be given careful attention so that non-EU residents banking in Switzerland through non-EU structures are left out of the EU catchment net.
The Swiss comply
They know they have no choice
Harry,
I don’t forget. And this time you can bet your bottom dollar that the EU Commission will ensure Switzerland adopts a precise “equivalent” measure as the directive. Last time they managed to sneak a few differences past the commission, such as omission of residual entities, reliance on home rules, structured products as a derivative, etc. You think the Swiss can cherry pick? LoL
…and by the way Art. 11(5) catches Paying Agents s Upon Receipt. It’s up to the Paying Agent Upon Receipt to identify the beneficial owner. If the Paying Agent Upon Receipt wants its bank to remain schtum, then it pays the price even with its Russian or Arab clients.
One more thing. The EU Commission will issue a side note that the appointment of out-of-jurisdiction management of Paying Agent Upon Receipt without commercial justification is “abuse” and should not be accepted by tax authorities. So one should not over rely on appointing Singapore Trustees / Managing Directors of Jersey Trusts / companies.
Noted today:
http://www.dailyfinance.co.uk/2011/06/13/how-tax-havens-poisoned-the-economy/
Mark
My point wasn’t that it wouldn’t hit Liechtenstein, more that it wouldn’t badly hit specifically Liechtenstein banks. Other forms of Liechtenstein service providers such as lawyers and trust companies will be hit far worse than their banks.
You say that if they won’t exchange information then they will either suffer 35% tax or flee. The reality is the latter – non-European clients will no doubt head straight to Singapore.
For those of us with clients who are fully compliant and are already exchanging information and/or are happy to exchange there’s really no issue to be concerned about.
Mark
So if a non-EU client with a Liechtenstein foundation which banks currently in Switzerland will be caught, but if by switching the bank account to Singapore it is no longer caught, there is actually no loss of business as far as Liechtenstein is concerned. Several Swiss banks already have subsidiaries in Singapore so they probably don’t care either. Seems very easy to circumvent it.
Harry,
Here’s a freebie for you..
Liechtenstein anstalts, foundations, trusts, establishments, partnerships, companies, etc are ALWAYS managed from Liechtenstein. Their law mandates a local resident director, trustee , council, etc. Therefore the Liechtenstein entity or legal arrangement becomes a Paying Agent Upon Receipt. And now for the shocker….
The Paying Agent Upon Receipt must apply the savings tax directive provisions IRRESPECTIVE of where the assets are held, whether it be in Vaduz bank, Swiss branch of HSBC, bank in Singapore, bank in Azerbaijan or get this, under a mattress in Rwanda (i fit earns interest).
I suggest you read this for a primer:-
http://www.the-best-of-both-worlds.com/support-files/liechtenstein-impact.pdf
Obviously, this applies equally to the Channel Islands.
However, Liechtenstein is particularly up the proverbial creek, because most of Liechtenstein’s 100,000 structures are used by clients with Swiss bank accounts. It is my guess that although Liechtenstein has some CHF 150 billion in its banks, the Liechtenstein structures probably hold another CHF 600 billion outside of Liechtenstein. So not only are their structures mandatory Paying Agents Upon Receipt… but according to Art 11(5) Swiss banks must either automatically report the interest paid to the Paying Agent Upon Receipt or deduct 35% tax, without looking through to who the beneficial owner is. I’m sure the Russians with foundations going to accept that. And I repeat, if the foundation moves its account to Singapore, Cook Islands, Mauritius, etc. the foundation remains a Paying Agent Upon Receipt and must withhold 35% tax for EU residents.
Sure, LGT bank may be able to move a few trusts lock, stock and barrel to their Singapore branch and use their new Singapore trustee subsidiary, but overall, the bulk of Liechtenstein lawyers, fiduciary service providers, admin staff, wealth management employees,tax advisers, etc. are looking at a bleak future in teh rural mountains.
There are complex compliant tax planning methods.. but this has become an ultra sophisticated chess game. If you still think like the 1990’s, then you’re going to be a fossilized relic. Perhaps your organisation should consider use my consulting skills.
Harry,
Regarding the simple move to remote branches by Swiss banks…. being “easy way to circumvent”
Read my link regarding aSingapore as a solution.
Also read the link on Andorran banks using Panamanian subsidiaries (not branches).
Don’t be a muppet and assume the EU Commission is fast asleep at the wheel regarding European banks using out-of-jurisdiction network in territories opposed to joining the EU directive. I strongly suggest a study of what’s in the pipeline against moving accounts out of territory.
Be aware as per Article 18, the EU directive will be reviewed for amendments every three years of operation. I can tell you, hand on heart, the second review is already well under way with some 13 issues being considered, and some contentious strategies being postponed to the third review.
No way Hosé, this isn’t a muppet’s game anymore.
Mark
No need for the hostile crap. My organisation needs to help on this as our clients are already fully tax-compliant. I’m more interested in the bigger picture because many others will be materially affected by this. They need your “consultancy services” – I don’t.
What my international and tax-compliant clients are concerned about is paying for the hassle of unnecessary bureaucracy when they are already compliant. They don’t need to have their structures administered from jurisdictions connected to the EU, so instead of having their structures in this part of the world they restructure them in Singapore, or Hong Kong, or Mauritius, or the Bahamas. So we set up offices in one or more of those places to enable us to retain those clients and use back office administration here, but under every known and proven test of management and control those structures become resident in that other jurisdiction for tax purposes. If you are going to tell me that a BVI or Bahamian company with three proper professionals doing a proper job of managing a company in Singapore cannot outsource the back office bookeeping, accounting and company secretarial work to somewhere like Jersey, with absolutely no decision-making power in Jersey by anybody, and that such a company would be deemed “resident” in Jersey, then I’m afraid that your credibility must be questioned. Such an entity cannot be “resident” in Jersey under any possible test.
You do seem to confuse “management” with “administration”. I don’t actually use Liechtenstein (I have only ever used one Stiftung, never an Anstalt, and only one Liechtenstein company). I am well aware that some of those entities require one locally-resident director or trustee (as applicable). I am also aware that most of them allow an unlimited majority of directors or trustees outside of Liechtenstein. So if the trust instrument or company statutes make it crystal clear that the locally-based single director or trustee cannot act unilaterally, and that he is merely one of several directors or trustees who act by majority only, then again under any tried and tested method that Liechtenstein entity is not resident there. It may of course be “domiciled” there – which isn’t the same thing. So surely Liechtenstein professionals would stop using Liechtenstien entities and simply establish similar foreign entities instead and just administer them from Vaduz with their management, and thus their residency, elsewhere ?
You may wish to re-write the long-established global rules of corporate and trustee tax residency but it ain’t quite that simple.
Harry
Respectfully I, and I suspect 99% of tax officials around the world and an even higher percentage of ordinary people, will not think your clients remotely tax compliant.
Tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes.
Using locations you seem to have a liking for is not reconcilable with tax compliance: only with aggressive tax avoidance
Please don’t beg favours for those doing aggressive tax avoidance. It may be legal – bit it does not stop the intent to make it impossible.
Because you don’t understand this is seems your are incapable of understanding what Mark is saying
You’d be wise to take note
the distinctions you seek to make are tax avoiders nit picking: the aim is to make them history
Richard
Harry,
Good luck with your inane abusive pure tax evasion strategy of appointing Singapore trustees of Jersey trusts. Let’s see if you can justify that. If I were you, I’d be ordering a book on how to run a bed-and-breakfast.
You truly are scraping the bottom of the desperation barrel.
Richard
Your definition of “tax compliant” is not an official one. Its your own. The fact that my clients engage in legitimate tax avoidance and estate planning which results in everything being declared in all relevant territories under all relevant anti-avoidance legislation is the definition that I and just about everybody else operates by.
Qatari client (no tax liabilities there) owning UK commercial property through a BVI company. UK tax paid on net rental income (after allowable deductions) under the UK’s Non-Resident Landlord scheme. No liability to UK or Qatari IHT. No liability to UK or Qatari CGT. Tell me what’s wrong with that, even under your own definition? Extrapolate to Saudi, UAE and Kuwaiti investors (no taxes there). Likewise to Hong Kong, Singaporean and Malaysian investors (ditto – they operate a territorial tax system). Likewise Indian-domiciled or Russian-domiciled UK residents (yes I know that the income tax position is slightly different where the client is UK-resident and has underlying UK-source income). Are you seriously saying that businesses such as mine don’t exist in the Channel Islands? If you are saying that then you are in denial. An if you can tell me that such businesses are acting unlawfully in any way (yes, of course assuming that the funds were legitimate in the first place) then you are also in denial. Maybe now you can see why I counter Mark’s arguments the way that I do. Such clients can very simply restructure their arrangements.
Mark
You really need to learn how to deal with people. I thought Richard’s attitude was unlikely to be matched by anyone but you seem to exceed even that level of hostility.
Please do keep up with the programme. Did I really say that a Jersey trust would simply appoint Singapore trustees? I don’t think so. Do you actually know anything about trusts? Do you not understand how the trustees of an existing trust can appoint assets onto new trusts so that the first trust ceases to exist? Do you not understand how trustees can appoint assets to beneficiaries (which may often include the settlor) and the recipient could, if he wishes, settle onto new trusts? No, I thought not.
I don’t think that my bed and breakfast skills need to be sharpened quite yet. But I do think that you could do a bit more research on the basics of trusts before you accept remuneration for providing your advice otherwise the person paying your fees is going to be very disappointed.
Harry,
Typo correction..
My Singapore link .
My last comment on this issue.
Art(1)(b) Place of effective management of an entity:
with or without legal personality, shall mean the address where key management decisions are taken that are necessary for the conduct of the entity’s activity as a whole. Where key management decisions are taken in more than one country or jurisdiction, the place of effective management shall be considered to be at the address where most of the key management decisions are taken relating to the assets producing interest payments within the meaning of this Directive; Where a board of directors formally finalizes and/or routinely approves key management, commercial and strategic decisions necessary for the conduct of the entity’s business in one State but these decisions are in substance made in another State, the place of effective management will be in the latter State. In determining the place where a decision is in substance made, one should consider the place where advice on recommendations or options relating to the decision were considered and where the decision was ultimately taken.
Indeed, the place where the board of directors meet is overruled as the place of effective management when it appears that the key management decisions are in substance made in another State.
For an offshore company managing a portfolio for beneficial owner(s), the most likely place of effective management is the permanent address of the majority shareholder.
Now go back to the drawing board, Harry.
Mark
Thank you – I am very comfortable with what you state to be the case.
Based on what you state, if all key decisions are made by the real directors doing their job properly in Singapore, and with no decisions whatsoever made or capable of being made in Jersey/Liechtenstein etc, then the structure will be outside the scope.
On the other hand, any structures where the offshore directors are mere puppets of the ultimate client will be clearly within scope. Properly-run offshore fiduciaries in the modern era simply do not allow anything of the kind to happen.
Those offshore organisations who do things properly will be fine. Those who do not do things properly will be far from fine because they will be caught. That’s exactly how it should be.
I don’t need to go back to the drawing board at all. Your fundamental error is in assuming that we are all puppets of our clients and do exactly as they tell us to do. If you had any real experience of the fiduciary industry over the past decade at least, then you would know that there are many of us who don’t fit your outdated stereoptypical model. However, I would concede that I know of some who certainly do fit your model. They should certainly be considering their futures. They’ve been foolish and haven’t moved with the times.
I am very grateful for your clarification. Its been a very useful dialogue despite the rather unnecessary hostilities.
Except Harry, you got the hurdle of “abuse” to overcome. Appointing Singapore Trustee of a Jersey trust is just not acceptable.
Sorry Harry. I don’t think you picked up on the Liechtenstein legislation. Majority of management of an entity / legal must be Liechtenstein directors. This shoots themselves in the foot.
Mark
What planet are you on? Please do your research.
There are literally thousands of Cayman and English trusts administered in Jersey by Jersey trustees. Settlors of trusts are free to choose whatever proper law of a trust they wish. A Jersey-resident trust does not have to be governed by Jersey trust law. Many trusts are exported from the UK to Jersey without any change of proper law.
In what way is it not acceptable? To whom? You are basing your comments on a total lack of knowledge.
Liechtenstein foundations (stiftungs) must have at least one resident Liechtenstein board member. There is no requirement for a majority to be resident there. Three board members in Singapore and one in Liechtenstein is perfectly acceptable. Please get your facts right.
Shooting themselves in the foot? I can only see one person doing that.