Tax compliance strategy
Liechtenstein has decided to adopt a financial center strategy that is based on client tax compliance. The Government Declaration of 14 November 2013 signalled Liechtenstein’s strong commitment towards its tax compliance strategy heralded by the Liechtenstein Declaration of 12 March 2009. Liechtenstein thereby confirms its endorsement regarding the applicable standards on information exchange on tax matters of the Organisation for Economic Co-operation and Development (OECD).
Automatic exchange of information (AEOI)
On 21 November 2013, Liechtenstein signed the Joint Council of Europe / OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters at the Global Forum on Transparency and Exchange of Information for Tax Purposes in Jakarta, Indonesia. Liechtenstein also counts amongst those 52 countries that entered the Agreement on the Automatic Exchange of Information (AEOI) on 29 October 2014. The members of the G20 (group of the twenty most important industrialised and emerging economies), the OECD and further important financial centers committed themselves to applying the AEOI. On 19 November 2014, Switzerland approved a declaration on its joining the multilateral Agreement on the Automatic Exchange of Information in tax matters.
Liechtenstein and the EU signed the AEOI agreement on 28 October 2015. The first exchange of bank data will occur in 2017 for the 2016 fiscal year. Switzerland and the EU signed the AEOI agreement on 27 May 2015. Swiss banks will collect data from 2017, which will be exchanged with EU member states as of 2018. The amended EU Mutual Assistance Directive commits the EU countries to the automatic exchange of information on cross-border tax assessments (Steuerbescheide) as of 1 January 2017. The EU country of Austria will exchange information on new clients from September 2017. Data collection will start as of October 2016 and the full exchange will occur in September 2018.
The Liechtenstein banks and Bankers Association expressly and actively support the financial center’s tax compliance strategy. On 1 September 2013, they passed guidelines setting minimum standards. In 2015, Liechtenstein’s banks prepared themselves and their clients for the future automatic exchange of information (AEOI). To this end, they have extended their tax compliance guidelines and have committed the Liechtenstein banking center to a standard of practice by means of self-regulation. In order to ensure tax compliance, the banks have been applying a risk-based approach since February 2015 to clarify the tax status of existing clients, whom they assist, if necessary, in meeting tax compliance.
The LLB Group plays a pioneering role in this process and has taken measures to achieve the strategic goal of a tax-compliant financial center. As early as 1 October 2012, it declared a risk-based approach with voluntary tax disclosure as the standard in the acquisition of new clients and has been implementing comprehensive measures for its clients to meet tax conformity since 1 February 2014. It had largely completed the transformation process by the end of 2015.
Double taxation agreements and tax information exchange agreements
Bilateral, long-term cooperation agreements form the basis of Liechtenstein’s financial policy. By the end of 2015, tax information exchange agreements (TIEA) were concluded with 27 countries, and double-taxation agreements (DTA) for cross-border administrative assistance in accordance with OECD regulations were concluded with 16 countries. The AEOI agreement concluded between Liechtenstein and the EU provides for exchange of information on request with all EU member states.
Liechtenstein / Switzerland
On 10 July 2015, Liechtenstein and Switzerland signed a new double-taxation agreement (DTA). It is planned that the agreement will come into force on 1 January 2017. The DTA is a comprehensive agreement which is based upon OECD recommendations and avoids the double taxation of income and capital. It replaces the current agreement of 22 June 1995 between Switzerland and Liechtenstein on various tax issues, which only governs the taxation of certain income.
The DTA now also includes the taxation of AHV pensions. These can be taxed solely in the state of residence. The respective country of domicile will continue to retain the right of taxation in the case of cross-border commuters. Benefits from occupational pensions are subject to taxation in the recipient’s country of domicile. The taxation of dividends, interest and royalty payments is now also governed by this new agreement.
Liechtenstein / Great Britain
The topic of untaxed offshore assets had already been treated in an exemplary fashion with the United Kingdom of Great Britain and Northern Ireland (UK) as early as 11 August 2009. This agreement with the United Kingdom also includes a bilateral disclosure programme that only applies to the Liechtenstein financial center. The Liechtenstein Disclosure Facility (LDF) has been in force since 1 September 2009 and offers persons with undeclared assets who are liable to taxation in the United Kingdom the opportunity to regularise their tax affairs in relation to the United Kingdom quickly and on favourable terms. Furthermore, Liechtenstein and Great Britain had signed a double taxation agreement on 11 June 2012, which came into force on 1 January 2013. The agreement to legalise the financial assets in Liechtenstein of UK citizens was in force until 31 December 2015.
Liechtenstein / Italy
Liechtenstein and Italy signed a tax information exchange agreement (TIEA) with a Protocol of Amendment as well as a joint declaration on future cooperation in tax matters on 26 February 2015. The agreement facilitated the regularisation of untaxed assets ahead of the introduction of the automatic exchange of information and provided legal security for Italian clients and Liechtenstein financial intermediaries.
Persons with assets in Liechtenstein who are liable to taxation in Italy could participate in the Italian voluntary disclosure programme. The Protocol of Amendment provided, on the basis of the applicable OECD standard, for the submission of requests to identify persons who have not participated in the Italian voluntary disclosure programme. Liechtenstein and Italy also reached an agreement to start negotiations on a double-taxation agreement.
On 16 May 2014, Liechtenstein signed an agreement with the USA on the implementation of the Foreign Account Tax Compliance Act (FATCA) according to model 1. Model 1 (EU5 model) – information exchange between two states – provides for a treaty and automatic exchange of information between tax authorities. For this purpose, FATCA has to be adopted into national law by each of the partner countries of the USA. The Landtag (Parliament) of the Principality of Liechtenstein passed the FATCA Law on 4 December 2014, which ensures that Liechtenstein’s financial institutions can continue to operate in the US capital market. The Liechtensteinische Landesbank in Vaduz submitted its first report to the Liechtenstein Tax Administration on 27 July 2015.
The US Foreign Account Tax Compliance Act (FATCA) obliges financial institutions worldwide to identify their US clients and to disclose their assets and revenues to the Internal Revenue Service (IRS) of the United States. The information goes beyond the applicable provisions of the Qualified Intermediary (QI) regime.
Government entities, central banks and international organisations as well as particular pension fund accounts and pension fund products are treated as exempt. Banks with a mostly local client base are considered to be FATCA compliant under certain conditions and are only required to register. Bank Linth does not come into this category since it belongs to the LLB Group. The same applies to LLB (Österreich) AG.