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Liechtenstein Disclosure Facility Failing

Friday, March 19, 2010

Six months since its launch, the UK's Liechtenstein Disclosure Facility (LDF) can only have had limited success, as findings from international audit, accounting and business services firm BDO show limited participation.

The LDF emerged from an agreement between UK tax officials and Liechtenstein. Through the LDF, UK authorities aim to eliminate all UK tax evasion with a Liechtenstein connection by March 31, 2015, but BDO's survey indicates it is unlikely to fulfil its purpose.

A recent survey of High Net Worth Individuals (HNWIs) in the UK commissioned by BDO found that 19% of UK HNWIs hold funds or assets overseas and of these individuals only 51% had heard of the LDF in the six months since it was launched on September 1, 2009.

The research also found that of the 19% of those surveyed with funds or assets overseas, 18% held bank accounts or other investments in Liechtenstein itself. However just 10% of these individuals had already participated in the LDF with a further 30% planning to participate in the future. The primary reasons for this participation were Inheritance Tax (33%), business investment (33%) and personal investment (33%).

Fiona Fernie, Partner in the Tax Investigations team at BDO, commented:

“While we have registered many clients for the LDF with HMRC (HM Revenue and Customs), we were aware that at this stage in the programme there would be a large number of people with assets in Liechtenstein who were either not aware of, or did not intend to participate in, the LDF. We believe that this will change significantly once the Liechtenstein side of the agreement becomes law and financial intermediaries there are compelled to write to their UK resident clients to notify them of the agreement.”

In October 2009 it was revealed in the UK press that just 27 individuals had registered for the LDF but until December 1, 2009, it was only available to those with bank accounts in Liechtenstein. From December 1, 2009, anyone with any investments or assets in any other offshore location was also able to participate in the LDF if they move some or all of those investments into Liechtenstein. BDO’s survey found that even with this increased access to the benefits of the LDF, just 5% of the HNWIs that were questioned said that they would definitely be interested in participating in the LDF with a further 10% undecided.

Fernie continued:

“HMRC has said that it will not offer such favourable disclosure terms as the LDF again and we strongly believe that those who have either not heard of the LDF and its benefits or have dismissed them as not relevant should now give serious consideration to making a disclosure under the LDF. Anyone who rejects the carrot now could well face the stick later.”