Advisers fear being caught in Liechtenstein tax net

The mass of information provided to HMRC from UK citizens declaring accounts through the Liechtenstein Disclosure Facility will be pounced upon by other UK agencies, advisers warn.

The taxman must share information with other departments, despite assurances that highly confidential information will stay under wraps in the amnesty.

This has left accountants and lawyers concerned as to how the advice they have honestly given with regards to disclosing tax in Liechtenstein will be treated if a client is later found to have made gains through criminal acts.

HMRC has already said it is “highly likely” the number of people using the facility will shoot up as new Liechtenstein laws calling on banks to seek evidence investors are UK tax compliant are endorsed.

At a recent event held at the British Bankers Association, advisers voiced concerns about the flow of information from HMRC about their clients, and how their work would be interpreted by the agencies receiving it.

In response Andy Cole, director of HMRC’s special investigations unit, conceded it was unclear what demands could be made on the Revenue by other UK agencies and overseas jurisdictions. “We can’t give any assurances about how tax information exchange agreements will be used by other jurisdictions,” he said.

Other agencies have passed information between each other previously after voluntary disclosures which have led to prosecutions, advisers have warned.

“There have been situations in the past where individuals have made a disclosure and another UK agency has got wind and prosecuted them off the back of it,” said Frank ­Strachan, tax director at Grant Thornton. “You could have situations with the LDF where other UK agencies say ‘we want a bite of the cherry’. There is a concern for advisers.”

Advisers face action if they are judged not to have taken reasonable care in making sure clients’ returns are accurate. But the LDF scheme’s architects have said that the concerns about information leakage are overblown and secondary to the central aim of making sure all UK citizens use the facility to declare any unpaid tax.

Philip Marcovici, a Zurich based lawyer who acted for the Liechtenstein government in negotiations, said: “It’s not a reason for them not to comply with their tax obligations. If they don’t want to play by the rules, then they shouldn’t be living in the UK. There’s unlikely to be a better option to pay your tax obligations under such agreeable terms.”

The issue rests on the Memorandum of Understanding between Liechtenstein and HMRC trumping the tax information exchange agreement with Liechtenstein. The Memorandum gives Liechtenstein the ability to control how confidential ­information is provided to the taxman through the LDF until 2015, when the amnesty closes.

HMRC, or any other UK agency, is unable to use the TIEA to glean data directly from Liechtenstein until then. But with HMRC now receiving data from Liechtenstein under the MoU, it would have to hand over that information to other agencies, including SOCA, the Security Services, The FSA and the Serious Fraud Office and the Financial Reporting Review Panel, if it is requested.

“They are duty bound to give the information,” said Jason Collins, tax partner at law firm McGrigors. “That’s why [HMRC] can’t give a blanket guarantee about how the information will be used.”

There are key safeguards in place to ensure the information is usually only passed on in cases of criminal investigations, but the fact remains that other agencies have a knack of digging up information, whether it be from whistleblowers or from cross-border deals.

HMRC did exactly that when paying for information about Liechtenstein accounts from a whistleblower.

Since the landmark deal was announced last year, HMRC has had to soothe the fears of investors, accountants and financial institutions that the confidential details will be kept in-house.

HMRC’s agreement with the European principality, spearheaded by HMRC chief Dave Hartnett and Liechtenstein’s Crown Prince, is generally regarded as groundbreaking.

“The long-term benefit to HMRC is improved UK tax compliance for Liechtenstein investors and increased tax receipts from those wishing to benefit from the favourable disclosure terms,” HMRC added.

In our view

HMRC has managed to pull off one of the most ambitious deals in tax avoidance history. Now it must ensure that the issues raised here are nipped in the bud.

Further reading:

hmrc.gov.uk/international/liechtenstein-eol.pdf