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The governments of the UK and Liechtenstein have signed an agreement aimed at encouraging UK residents with investments in the principality to clear their tax arrears.
The disclosure programme – which is being hailed by HMRC as 'historic' and ‘groundbreaking’ – will cap penalties on unpaid tax at 10% of tax evaded over the past ten years, provided the taxpayer provides full disclosure of his or her financial dealings.
Those who fail to reveal all by the end of the programme will find their accounts in Liechtenstein closed down, warned the taxman.
The department’s permanent secretary for tax, Dave Hartnett, added: ‘Those who have been evading UK tax on assets held in Liechtenstein banks must now settle with us. There are no alternatives.’
The new agreement was signed at the same time as a new Tax Information Exchange Agreement (TIEA) between the new countries. It will be known as the Liechtenstein Disclosure Facility (LDF) and will run from 1 September 2009 to 31 March 2015.
The LDF comes shortly after HMRC revealed the final details of its forthcoming New Disclosure Opportunity (NDO), the long-awaited follow-up to 2007’s Offshore Disclosure Facility (ODF).
Its aim is to compel holders of offshore accounts to come forward with full details of unpaid taxes and duties, and settle in full all debts with the Revenue. The scheme bears some differences from the LDF - ones that are ‘wholly unfair’, according to tax investigations expert John Cassidy.
The NDO – which will begin next month – will ask taxpayers to declare unpaid tax as far back as 20 years, and in some cases they may have to pay a 20% fine.
‘It is wholly unfair that there are different rules for those with investments in Liechtenstein and those with investments in other offshore jurisdictions,’ said Mr Cassidy, who is a partner at PKF.
‘The rights or wrongs of how the original data for Liechtenstein was obtained are one thing, but to make it clear that the data was not even used, by offering an amnesty, takes the situation to another level. The disparity of terms between the new amnesty and the NDO is the final nail in the coffin.’
Mr Cassidy continued: ‘I would urge people to make use of the [LDF] - but I also urge HMRC to align the terms of the NDO with this new amnesty.
‘Anecdotal evidence suggests that the 20-year time limit had a hugely negative impact on the overall amount of tax that HMRC collected… in 2007, as many were put off by the sheer enormity of the [ODF] project.
‘Today’s news only provides a further disincentive for those supposed to use the NDO simply because they banked in a different place.’
