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  1. Wealth
June 12, 2012

UK and Liechtenstein sign tax treaty, UK takes foot off Liechtenstein's neck

By Spear's

After the prime minister of Liechtenstein and a senior British HMRC official signed a new tax treaty between the two countries last night, they celebrated with smiles and jokes what felt like compulsion and redemption

After the prime minister of Liechtenstein and a senior British HMRC official signed a new tax treaty between the two countries last night, they celebrated with smiles and jokes what felt like compulsion and redemption.

The tax treaty and the Liechtenstein Disclosure Facility, said Jürgen Frick, CEO of Liechtenstein’s Bank Frick, made the country compliant with dirty-money regulations, but what had to be done was change Liechtenstein’s image in the public mind: ‘We have adapted. We have got to get people to realise we are no longer a tax haven.’

The UK-Liechtenstein Double Taxation Treaty prevents income taxable in both states from being taxed in both states, but more importantly contains a provision for the exchange of information between the countries: if Britain thinks one of its taxpayers is hiding money in Liechtenstein, it can demand details.

The DTT follows the creation of the Liechtenstein Disclosure Facility, which allows Britons to bring hidden money onshore through Liechtenstein and only pay a proportion of the tax they would otherwise have owed plus a small penalty. So far, 2,400 people have taken up this offer, and one lawyer at the press conference after the signing said he had just moved £70 million into Liechtenstein, with a £12 million tax bill.

Prime minister Klaus Tschütscher told Spear’s that Liechtenstein had had to haul itself up from a very low point in 2008. ‘From the bottom with the Zumwinkel affair,’ prime minister Tschütscher told Spear’s, ‘we’ve negotiated 30 treaties from the green ground.’

In 2008, a damaging scandal broke about wealthy Germans, including Klaus Zumwinkel, CEO of Deutsche Post, hiding money in Liechtenstein, and secret client data from Liechtenstein’s banks were sold to the German government. In 2009, Liechtenstein was included on the OECD’s blacklist of uncooperative tax havens published after the G20 meeting in London.

After the scandal, Liechtenstein began to repair its reputation by signing DTTs. Liechtenstein is currently working out treaties with Austria, Germany, Italy, the US and France, although the prime minister said that France was proving difficult – ‘they have to find their own position’ since Hollande’s election.

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(Interestingly, he said Sarkozy was no easier: ‘After every G20 conference he would go out and start talking about Switzerland and Liechtenstein with no background knowledge.’)

The signing of the innovative LDF in 2011 was another step forward, and provided relief for both Liechtenstein – who were now Britain’s eager partners in combating tax evasion – and Britain, because it could stop leaning on Liechtenstein quite as hard and stood to reap billions from the deal.

Dave Hartnett, the permanent secretary for tax at HMRC, told Spear’s that the government had been hoping for £1 billion from the LDF but had so far made £3 billion. When asked whether there would be more money from similar disclosure facilities with other countries, he said with a jollity not immediately attributable to a taxman, ‘I’ll have to tease you: we’re talking to four other countries. We won’t do the LDF again – that was our commitment to Liechtenstein.’

These measures didn’t mean an end to banking secrecy, said Fritz Kaiser, a senior banker in Liechtenstein and one of the instigators of the LDF and the country’s repairing of its reputation. Lazy journalists assumed it did, ‘but secrecy isn’t dead – secrecy is still important, but not to misuse it’ by evading tax.

So everyone seemed happy last night at the Institute for Civil Engineers in Westminster: HMRC has got tax and information from Liechtenstein; Liechtenstein has got Britain off its back; and lawyers have more work processing the LDF disclosures. Won’t someone spare a thought for the poor tax evader?

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