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March 29, 2010

Taking the ‘Lie’ out of ‘Liechtenstein’

By Spear's

by Freddy Barker
THE HILLS ARE alive with the sound of… disclosure? On Friday, HMRC began promoting its Liechtenstein Disclosure Facility (LDF) aimed at those UHNWs who have money in or move money to the principality and declare it. The LDF promises minimal tax penalties on disclosed assets, a guarantee of no prosecution, and exemption from naming and shaming. ‘It is a once in a lifetime opportunity,’ beamed Steve Symonds, technical specialist at HMRC.

The realpolitik of the offer is that the cash-strapped British government is trying to identify offshore funds in order to generate extra tax revenue. Brown & co need the windfall to alleviate the ever-burgeoning national debt – which at £1.4 trillion (in 2015) will be bigger than South America’s GDP, or 32 times the size of Bill Gates’s wallet. Having seen how Silvio Berlusconi managed to repatriate €95 billion (£85 billion) with his tax amnesty last year, HMRC is well aware of the potential rewards.

Liechtenstein, on the other hand, is jumping the gun on its tax haven rivals. As an alpine nation of just 35,000 souls, it is highly dependent on financial services (29% of GDP, 14.3% of jobs) to keep the economy ticking over. Faced with the West’s declaration of economic warfare on tax havens, the German-speaking principality is ‘grasping the nettle and adopting a white money strategy’, said Simon Airey, director of DLA Piper’s national tax investigations practice.

Although UHNWs will be sceptical of the proposal as they have seen its like before, the LDF is much more radical and much less punitive than its predecessors. HMRC has learnt from previous disasters: the Offshore Disclosure Facility (2007) raised only £400 million whilst the New Disclosure Opportunity (2009) did so badly that no figures were released. Thus the new deal offers a shorter look-back period of ten years compared to the ODF and NDO’s 20 years, and a lower penalty of 10% plus interest on unpaid taxes.

To give an example of how generous it is, consider an inheritance package of £10 million. Assuming that the undisclosed assets were passed down in 1990 and have grown to £20 million since, then after tax, interest and penalty payments, a UHNW would receive £16.6 million rather than the normal £2.8 million.

What’s more, HMRC have made it much easier to explore the idea. They have set up a special Liechtenstein Desk (0845 600 4680) which, LDF technical specialist Steve Symonds said, can be contacted in total anonymity.
IF UHNWS ARE considering the carrot, they may also want to look at the stick that the Government is wielding too. ‘We’re in a different world now,’ warned Stephen Timms, Financial Secretary to the Treasury, recently. ‘I want it to become increasingly clear to taxpayers and tax agents that for tax cheats, the game is up.’

To that end, HMRC have issued an array of measures to crack down on tax evasion and avoidance. They have started to track electronic transfers to and from the UK. They have issued compulsory disclosure notices to 308 financial institutions. They have set up a Stasi-style informers’ hotline for disgruntled wives, overlooked employees and malicious competitors. And they have won powers to impose 200% fines and prosecute those who do not disclose assets abroad.

‘More has been done to undermine banking secrecy over the past six months than over the last 60 years,’ said Simon Airey of DLA Piper.

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Combine the HMRC clampdown with increased data theft (most recently at HSBC’s Swiss private bank) and over 300 tax information exchange agreements signed in the past year (75% of the total in existence), and the super rich would be right to feel that the writing is on the wall for undisclosed assets.

Those tempted to come clean should not wait for the closing date, 31 March 2015, however, for the LDF is only open to those making voluntary disclosures. If HMRC discover malpractice in the meantime – which is likely given the worldwide crackdown – then one gets none of the benefit, and all of the pain.

With the time imperative, UHNWs with undisclosed assets in all offshore jurisdictions will be delighted to hear that Liechtenstein, the LDF conduit located between Austria and Switzerland, has strong benefits going forward.

‘We do not have a single penny of government debt,’ explained Reto Strub of the LGT Group (the princely bank in Liechtenstein). ‘We have political stability in that the Prince’s family being here for over 800 years, and we have economic stability in that we use the Swiss Franc.

‘We are very risk averse. We do not offer investment banking but we offer all other banking services. What’s more, we do this from a very stable platform. We operate a tier 1 capital ratio of 1 to 18, where as UBS for example have a 1 to 8 ratio.’

The Government has finally realised that enticing UHNWs to reveal their assets – rather than threatening them – brings a much greater chance of increasing disclosure. UHNWs suffering from sleepless nights over undeclared assets should start booking their ticket to Vaduz.

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