Liechtenstein leads way in re-inventing itself amid global crackdown on financial evasion

Wealthy people with offshore accounts in Liechtenstein face smaller penalties if they ‘come clean’ and disclose unpaid taxes under an accord between the principality and the UK.

Officials in the tiny European country are also keen to open discussions with the US, France, Germany and Italy about similar arrangements.

British citizens with accounts in Liechtenstein who disclose assets to the UK face penalties of as little as 25% of the usual amount, according to Olivier de Perregaux, chief financial officer of LGT Group, the principality’s biggest bank.

According to Philip Marcovici, a Zurich based lawyer involved in working out the agreement between Liechtenstein and the UK, Switzerland bankers need to move with the times. ‘A number of Swiss banks are completely in denial. A younger generation may think of Switzerland as the place where my grandmother used to hide her money,’ he said.
 
Liechtenstein is regarded as having made in-roads in terms of re-inventing its financial services industry amid a global crackdown on tax havens. The agreement with the UK exceeds standards set by the Organization for Economic Cooperation and Development, experts point out.
 
Under the deal British clients have until the end of March 2015 to make a voluntary disclosure or their accounts in the principality will be shut. Penalties for the past decade will be capped at 10% of taxes evaded and may be as high as 30% for tax years following April 2009.
 
It is estimated that one in 20 of the principality’s existing clients are British and UK tax authorities expect to net revenue of £1 billion from the agreement. ‘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 said in a statement.
 
In the last 12 months money managers in Liechtenstein have reported asset gains. Investment funds reported a 41% increase in assets under management to 37.3 billion Swiss francs last year and assets at the principality’s banks climbed 3.5% to 125.1 billion francs.
 
As other former tax havens also work on re-inventing themselves it is to Liechtenstein that they look for its model approach. It is an approach that Switzerland in particular needs to follow, according to Adolf Real, chairman of Liechtenstein's bankers association.
 
He reckons Switzerland is about two years behind as it has failed to come up with any innovative ideas. Swiss banks, which manage about 27% of the world’s privately held offshore wealth, have proposed a withholding tax where client identities would remain secret. But the lack of transparency doesn’t meet OECD standards.
 
‘Switzerland seems to be failing miserably at leading the world on what is a global issue, not a Swiss issue. Swiss banks have this false impression that somehow after the financial crisis governments will forget about this. That’s nonsense,’ said Marcovici.