Liechtenstein sets the pace on tax

OFFSHORE banks have provided a tax-free haven for wealthy investors’ cash for more than 70 years.

But as HM Revenue & Customs steps up its pursuit of British account holders, several international banking centres are cons­idering following Liechtenstein’s lead in brokering an anonymous amnesty between the UK authorities and individuals with undeclared money stashed offshore.

Prime Minister Gordon Brown has said the government hopes to recoup up to £1bn over the next five years through the Liechtenstein Disclosure Facility (LDF). Opened in September last year, the LDF lets British citizens with offshore funds anywhere in the world reveal their savings to HMRC via one of Liechtenstein’s participating private banks.

Unlike previous disclosure facilities open to offshore account holders, the LDF offers generous terms, guaranteed immunity from prosecution and protection from the government’s policy of “naming and shaming” tax dodgers. The combination makes it attractive, especially to those living in fear of discovery by HMRC’s increasingly incisive investigations.

The move is being watched with interest by other traditional homes of banking secrecy such as Switzerland and the Channel Islands.

Prince Max of Liechtenstein, head of the royal family’s banking group LGT, says offshore centres will be forced to move with the tide of tighter regulation and growing determination by nations like the UK to pump up their tax take.

“What is for sure is this is being viewed as a very interesting facility by a number of other countries. It has created a lot of interest in many other tax jurisdictions,” he says.

LGT knows better than most how desperate HMRC is to get its hands on offshore cash. It suffered the theft of 300 British customers’ details in 2002. The files were subsequently sold to the UK authorities for a reported £100,000 in 2008.

“Many of the tax authorities are becoming very keen on increasing their tax revenues, so they will look that much harder for people who are not declaring their taxes correctly,” Prince Max says.

In the past, offshore amnesties have yielded underwhelming results. Intent on raking in a significant amount of cash, HMRC is this time offering beneficial conditions so that a cash deposit of £20m declared through the LDF will incur a £3.4m settlement fee, compared with the £14.4m chargeable through normal disclosure rules.

Dave Hartnett, permanent secretary for tax at HMRC, hints the UK is discussing similar schemes with other offshore centres.

“The world continues to get smaller for those who seek to hide behind secrecy laws to evade tax. We are talking to other tax havens about how they can best get in line with the move towards global transparency.”