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Tuesday, 11 August 2009

Liechtenstein: Trust me

Splashed all over the media with such consistency that it has the hallmarks of a big press campaign, we hear that the UK government will announce a deal with Liechtenstein today that, according to HMRC, effectively ends secrecy for Britons who hold accounts in the tax haven. The media say that up to 5,000 British investors have an estimated £3 billion stashed away in secret accounts in the country. In other words, it could be a lost less and they don't really know how many investors there are.

UK tax payers who are Liechtenstein account holders will be asked to settle unpaid tax going back 10 years, and pay interest and a penalty of 10 per cent of the tax. They are being offered better terms from the UK government than investors in other offshore jurisdictions, who in September will be offered an amnesty, or “new disclosure opportunity”, under which they will have to settle unpaid tax going back up to 20 years, along with interest and penalties of 10 per cent, or in some cases 20 per cent.

There is also talk of a "tacit assurance" that investors who come forward will not be prosecuted, but there is no official guarantee of immunity because HMRC can't do that.

The Liechtenstein authorities will be asked to close the accounts of those who do not take up the amnesty. Banks will then be independently audited to verify the undeclared accounts have been purged. So the UK tax man goes home happy knowing that there are no UK bank accounts in Liechtenstein without any breaches of confidentiality.

Or not quite. Liechtenstein is the only civil law jurisdiction that has taken up the largely Anglo-Saxon trust, although, unlike the common law trust, there is no bar against accumulation of income, nor against perpetuities. How convenient for all those Anglo-Saxons out there who can let their income roll up in the trust. And the trusts may be set up under foreign laws, which is also convenient for Anglo-Saxon lawyers who understand these things.

A Liechtenstein Trust is set up by a deed between the settlor and trustees. The trust deed does not have to name the beneficiaries. If the trust deed is deposited with the Liechtenstein Registrar of Trusts, it will not be publicly available, and later instruments, which might, for example, name beneficiaries, who might just happen to be Anglo Saxon, do not have to be disclosed. So if the trust is established with Liechtenstein trustees, there is no reason why the details of UK resident beneficiaries should show up in an audit.

And, trust me, they won't.


Just watched the reporters on the TV channel of anothr pink paper dribbling their ignorance all over a report on this. First of all to the young tyke interviewer, this does not affect Britons living in Liechtenstein - this is about people resident in the UK who do not declare their worldwide interest income.

Secondly, to the FT woman interviewee who thinks that money laundering regulations will cause problems because payments will have to be reported (because that is what HMRC told her), there is no reason to believe that any deposits that are moved from foreign country A to foreign country B outside the UK will ever have to be reported to the UK authorities, let alone HMRC, particularly when moved from one offshore trust to another.


Demetrius said...

If something seems too good.... Thank you for this one, my instinct was saying uh oh whats with this? Of course, if a small number of strays are caught it will claimed to be a major success, but I suspect that none of the big boys will be in sight.

Andrew said...

Very good piece. A Liechtenstein Trust must, by definition, be established under the applicable 1928 Liechtenstein law. For lawyers familiar with common law trusts, there are a few quirks (e.g., those mentioned and an adaptation of the beneficiary principle) but, otherwise, it is pretty easy to get the hang of Liechtenstein trusts.