A Better Class of Tax Evasion – the Lichtenstein Disclosure Facility Versus the New Disclosure OpportunityIn 2007, HMRC managed to force several UK banks to provide them with details of offshore accounts held by their customers, and then proceeded to offer a sort of amnesty to those UK residents who had failed to mention their bank interest arising outside the UK in their tax returns. The exercise was only partially successful, but now HMRC are offering another chance to come clean.
They have also managed to negotiate a deal with Lichtenstein (in exchange for a considerable amount of European Aid), whereby the Lichtenstein banks will give customers who may be UK resident 18 months to come out with their hands up and pay their UK tax liabilities, and will close the accounts and disclose the identities of those who fail to cooperate.
This has led to the amusing spectacle of a two-tier level of disclosure. If your ill-gotten gains are squirreled away in Lichtenstein (where all the best tax evaders do their banking), you can opt to come clean using the “Lichtenstein Disclosure Facility” (LDF) rather than the “New Disclosure Opportunity” (NDO) that applies to the seedier type of tax fraudster who banks in Jersey or the British Virgin Islands or any of the other comparatively downmarket tax havens. There is a big difference in the level of service you will receive. Under the LDF, you will only have to disclose income arising since 6 April 1999, whereas the NDO requires you to go back 20 years.
If you can persuade HMRC that you “innocently” did not realise you had to disclose your Lichtenstein bank interest, you only have to go back for 6 years and there will be no penalties. In all other cases, the penalty will be 10% of the tax evaded – 20% for those who were written to by HMRC in 2007 but failed to respond to the invitation. The same rates apply to the NDO, but there is no scope for “innocent error” here. It beggars belief that a UK resident sophisticated enough to open an offshore account with the notoriously exclusive bankers of Lichtenstein would “innocently” not realise he had to declare the interest in the UK, while another taxpayer who invested his cash in Jersey must have had the guilty knowledge that he was evading UK tax.
Under the LDF, there is a cast iron guarantee of no prosecution for tax fraud, whereas all the NDO offers is a vague statement that it is “unlikely” that you will be prosecuted.
It is even possible for those with accounts in other jurisdictions to move their ill-gotten gains to Lichtenstein before making a disclosure, so as to take advantage of the luxury-class rules that apply to the LDF. This only applies, however, if you opened your offshore account locally, rather than using a UK branch or agency of the bank concerned. The reason is simple – the UK branches are vulnerable to information demands from HMRC about their offshore customers, but a purely offshore bank is outside HMRC’s reach.
This may not be the end of the story. HMRC are currently signing up to “Information exchange” agreements with a variety of other countries with a reputation for having conveniently incurious and secretive banks – at the time of writing, the most recent to join the party were Switzerland and Austria. It remains to be seen to what extent these jurisdictions will be able to negotiate a soft landing for their UK resident customers.