Restrictions on use of Liechtenstein disclosure facility (LDF)

Fri 12 Sep 2014

The LDF was launched back in 2009 as a means of encouraging taxpayers to disclose previously undisclosed tax liabilities on favourable terms.  The LDF runs until 5 April 2016.

On 14^th August the Liechtenstein Government and HMRC signed the fourth declaration concerning the memorandum of understanding (MOU) between Liechtenstein and the UK on tax cooperation. 

This MOU means that not all of the favourable terms of the LDF will be available in three circumstances, being where:

1. HMRC are already aware of the tax liabilities – i.e. no disclosure of new information is made
2. the issue has already been subject to an HMRC enquiry for more than three months
3. there is no substantial connection between the tax liabilities and the offshore asset held by the taxpayer on 1 September 2009

Taxpayers falling into one of these circumstances will not be entitled to a fixed 10% penalty, a limitation in the years on which tax can be assessed (to 1999/2000) and the ability to settle at a composite rate of tax.  Note that the immunity from criminal prosecution is unaffected by these changes.

The first circumstance excludes from these favourable terms taxpayers having a change of heart as to taxability, all schemes that were or should have been reported under DOTAS and employers who used employee benefit trusts (EBTs).  This comes at a time when taxpayers who have entered into disclosed schemes might have sought to settle in view of the new accelerated payment notices and follower notices.

Alongside this change due to the MOU, HMRC had previously announced that the settlement opportunity for EBTs will come to an end in March 2015.  With regard to EBTs, HMRC have discovered that some have tried to use the LDF to pay less by way tax, interest and penalties.  HMRC are encouraging any who are not amongst the 5,800 who have registered under the LDF and have an EBT to ‘engage in the EBT settlement opportunity instead, while it is still available’.  Bearing in mind the (lack) of success of HMRC in EBT litigation, any companies with outstanding tax issues concerning EBTs should take advice as to the robustness of negotiating stance with HMRC.