About 5,000 British investors with an estimated £2bn to £3bn in secret Liechtenstein bank accounts will be asked to come clean under a ground-breaking deal signed on Tuesday.
HM Revenue & Customs, the British tax authority, wants to prise open the accounts by offering investors the chance to volunteer details of their deposits in return for limited penalties.
Liechtenstein banks will be asked to close the accounts of customers who do not take up the Revenue offer. Banks and trust companies will then be independently audited to verify the undeclared accounts have been purged.
Stephen Timms, financial secretary to the UK Treasury, on Tuesday said the “ground breaking” deal was “a big step forward for tax transparency.”
The agreement, which could serve as an international model for opening up Liechtenstein accounts, comes a few months after the tiny Alpine principality agreed to ease its bank secrecy rules amid unprecedented international pressure on tax havens.
Klaus Tschütscher, Liechtenstein prime minister said the deal set out a “pragmatic path” which ensured legal certainty and help bridging the individual interests involved.
He said UK and Liechtenstein would begin negotiations on a double taxation agreement, which could benefit Liechtenstein by strengthening the international market access of its industry.
Liechtenstein, once viewed as one of the most secretive jurisdictions, came under intense pressure following Germany’s success last year in uncovering tax evaders after buying stolen customer data from a former employee of a Liechtenstein bank.
The deal offers easy terms to account holders in an attempt to persuade the Liechtenstein authorities to take the drastic step of rooting out evasion.
The generosity of the terms also reflects the paucity of information that HM Revenue & Customs has about the secret accounts.
No official guarantee of immunity is being offered, but there is a tacit assurance that investors who come forward will not be prosecuted.
Although the Liechtenstein investors would in principle be free to move their money without telling the UK tax authority, they would risk triggering a disclosure under anti-money laundering rules.
The British tax authorities are particularly eager to crack open accounts held in Liechtenstein because it is seen as a haven for large amounts of “old” money and illicit funds.
The 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.
Investors in other jurisdictions face harsher terms because the government expects to secure imminently a legal notice forcing banks with offshore branches to divulge customer information.
The deal between Liechtenstein and the UK will accompany an agreement to exchange tax information on request. But by itself this would probably have a modest impact on tax evaders because the UK tax authority could request information only if it had good grounds for suspicion.
In March, Prince Alois, the hereditary ruler of Liechtenstein, said its “fresh approach” would be more productive for all concerned than threats of discovery. Liechtenstein’s initiative could serve as a global template, he said.
“We think we have come up with an approach that is much more attractive to all concerned. This is a chance to secure a really long-term solution,” Prince Alois said.
In March, HM Revenue & Customs said its proposed deal with Liechtenstein would put it in a position where there would be no bank accounts it did not know about.