Liechtenstein: Double Tax Treaties

The Liechtenstein Double Tax Treaty with Austria has been effective since 1970. The Treaty applies to resident individuals, companies transacting commercial business (ie not investment business), and holding companies, providing these can prove that at least 51% of their capital is held by Liechtenstein citizens.

BACK TO TOP

Liechtenstein International Criminal Co-operation

Liechtenstein subscribes to the European Convention on Co-operation in Criminal Matters through its own Law on International Co-operation in Criminal Matters. Foreign investigators may petition the Court for the authorities to conduct investigations; there is an appeal procedure against such a Court Order.

There are no agreements between Liechtenstein and other countries regarding fiscal matters, and the authorities reject requests for information concerning alleged tax evasion.

However, in early 2000 Liechtenstein's reputation as an offshore centre was tarnished by a number of money-laundering cases and in March 2000 the government announced a package of reform measures to tackle the problem, to include major revisions to the law covering the duty of care, changes to the penal code and the code of criminal procedure and a complete re-organisation of procedures for giving international legal assistance. In addition, the Financial Services Department was split into two, one part dealing with the capital markets and the other with financial services. The measures were implemented from the beginning of 2001.

A Financial Intelligence Unit was also established as an early warning system for potential abuse of the country's banking secrecy. In March 2002, the principality's Parliament unanimously approved a new law specifying the competencies and duties of the FIU, which had previously operated on the basis of a statutory instrument.

The law clarified the procedures which the body should use in order to procure and analyse information on potential and actual money laundering activity, and confirmed its position as an essential element of the amended regulatory system put in place in Liechtenstein's financial sector in the wake of OECD demands and the September 11 attacks.

The law allows the FIU to cooperate and exchange information with authorities in Liechtenstein and abroad, and provides for it to solicit assistance from foreign FIUs and other regulatory bodies.

In March 2001 Italy, Switzerland, France, Germany, Austria and Liechtensten agreed to collaborate more closely to combat money laundering activities at a meeting held in Sicily.

Ruth Metzler, Switzerland's justice and police minister said that regular meetings between the law enforcement authorities of each country were agreed upon and the ministers discussed the logistics of enhanced cross border cooperation over money laundering investigations.

In July, 2002, the United States and Liechtenstien signed a mutual legal assistance treaty designed to combat money laundering and terrorist financing. The agreement facilitates foreign investigations into tax fraud, money laundering, and other financial crimes; however simple tax evasion does not fall under the remit of the agreement, as the result of a Liechtenstein law which states that the non-payment of taxes is an administrative matter into which foreign investigators may not probe.

In September, 2002, Liechtenstein's Head of Government, Otmar Hasler also confirmed that the Principality had recently concluded an agreement with Monaco over the prevention of money laundering and terrorist financing.

The US mutual assistance treaty has been ratified by both countries, and came into force in August, 2003.

In December 2008, it was announced that the United States and Liechtenstein had signed an agreement to allow for the exchange of information on tax matters between the two countries.

The agreement was signed by US Charge d'Affairs, Leigh Carter and Liechtenstein PM, Otmar Hasler in Vaduz, Liechtenstein.

The TIEA was designed to allow for the exchange of information relating to 2009 and the years following. Documents or other information created before 2009 can be obtained, provided that the request relates to an investigation of a post-2008 year. In the case of pre-2009 years, information can be exchanged regarding criminal tax matters under the US-Liechtenstein Mutual Legal Assistance Treaty.

It further emerged that as part of the signing of the TIEA, the United States would be extending Liechtenstein's treatment as an eligible Qualified Intermediary (QI) jurisdiction until December 31, 2009.

The US Treasury explained that:

"This one-year extension is intended to provide Liechtenstein with time to enact the legislation necessary for full implementation of the TIEA. If Liechtenstein fully implements the TIEA by the end of 2009, Liechtenstein's QI status will be renewed for the standard six-year term."

"The QI program generally allows financial institutions that are located in an eligible QI jurisdiction to enter into an agreement with the IRS in which the foreign financial institution assumes certain documentation and withholding responsibilities in exchange for simplified information reporting for its non-US account holders."

In 2009, Liechtenstein signed the Council of Europe Criminal Law Convention on Corruption

The Criminal Law Convention calls for the criminalization of a wide range of forms of corruption (such as active and passive bribery of domestic, foreign, and international officials and members of parliament, as well as private bribery). The Convention also contains provisions on international mutual legal assistance relating to corruption and the laundering of proceeds from corruption.

The Convention provides for regular reviews of its implementation in signatory states by the Group of States against Corruption (GRECO). Accession to the Convention automatically entails membership in GRECO. To further improve Liechtenstein’s reputation, this membership was brought forward to January 1, 2010.

At the same time, the Second Additional Protocol of November 8, 2001 to the European Convention on Mutual Assistance in Criminal Matters was signed by Liechtenstein. The Additional Protocol modernizes the Convention, which dates from the year 1959 and entered into force for Liechtenstein on January 26, 1970.

The provisions of the updated protocol are largely based on the EU Mutual Assistance Convention of May 29, 2000, and the Convention of June 19, 1990, implementing the Schengen Agreement (e.g. questioning by video and telephone conference, return of criminal goods, and cross-border observation). In both cases, the ratification process should be concluded in 2010.

The United States, France, Germany, the United Kingdom, Ireland and Luxembourg have already concluded agreements with Liechtenstein, and a multilateral European Union (EU) Anti-Fraud Agreement has also been agreed in principle. Liechtenstein expects a speedy approval of this EU agreement.

On April 1, 2009, senior representatives of the Liechtenstein government and the UK's HM Revenue and Customs met to discuss how to take forward increased tax transparency between the UK and Liechtenstein.

Liechtenstein has asked for technical assistance from the UK to help determine the identity of UK residents with beneficial interests in Liechtenstein structures and bank accounts. Not surprisingly, the move has been welcomed by the UK government.

"The UK recognised and supported the efforts Liechtenstein is making to transform its financial services industry. Legal certainty for UK taxpayers, for Liechtenstein and the Liechtenstein financial centre will be part of the discussion," said an HMRC statement.

The UK and Liechtenstein agreed to move forward quickly to reach a formal tax information agreement in the near future.

Stephen Timms UK Financial Secretary to the Treasury said: "The outcome of these discussions demonstrates that we are fast moving forward into a new era of transparency and openness in global tax administration, founded on exchange on tax information. This is good news both in terms of the interests of the majority of honest taxpayers who pay their fair share and also in protecting the revenues that fund our vital public services."

Dave Hartnett, Permanent Secretary for Tax at HMRC commented: "These were unprecedented discussions and we are looking forward to more detailed talks. We are grateful to the Liechtenstein government for their efforts to conclude an information agreement between Liechtenstein and the United Kingdom."

Hartnett added: "This is a further vital step in ensuring that dishonest taxpayers have no place to hide, while enabling honest taxpayers to legitimately engage with the Liechtenstein financial services industry."

The announcement followed the 'Liechtenstein Declaration' on March 12, when the Principality pledged to conform to OECD standards on transparency and seek out new tax agreements with other countries and jurisdictions.

In August 2009, the UK government announced details of the “groundbreaking” disclosure agreement with Liechtenstein that gives UK taxpayers with undisclosed accounts in the Alpine jurisdiction the opportunity to disclose income at a reduced penalty, or face having their accounts shut down.

The so-called Liechtenstein Disclosure Facility (LDF) agreement, signed by the two governments on August 11 along with a broader Tax and Information Exchange Agreement, will allow penalties on unpaid tax to be capped at 10% of tax evaded over the last 10 years providing that the account holder makes a full disclosure to HM Revenue and Customs (HMRC).

However, those who do not make a full disclosure by the end of the program, which runs from September 1, 2009 to March 31, 2015, will find their Liechtenstein accounts closed down. They may also face penalties on any unpaid tax of up to 100%.

In September 2009, Liechtenstein and Luxembourg signed a double taxation agreement in line with OECD standards for tax transparency.

Luxembourg's Finance Minister, Luc Frieden and Liechtenstein's Prime Minister, Klaus Tschutscher signed the double taxation agreement in Vaduz.

That same month, Liechtenstein initialled the text of a DTA with San Marino, agreed to commence DTA negotiations with the Czech Republic, agreed the text of TIEAs with Andorra and Monaco, and concluded a TIEA with France. September 2009 also saw the approval by Liechtenstein's legislature of the TIA with the US.

In the following month, further TIEAs were signed with St Vincent and the Grenadines, and Ireland.

This Irish TIEA was expected to enter into force from 2010, provided the two countries had completed their individual ratifications procedures by the end of 2009.

"Today's signing is another consistent step on Liechtenstein's path of international cooperation in tax matters. With this step, we are also intensifying our relations with Ireland," said Liechtenstein's Prime Minister, Klaus Tschütscher.

In addition to concluding the agreement, Liechtenstein and Ireland also agreed to continue talks on closer cooperation between the two countries. The goal is to conclude a double taxation agreement as soon as possible.

Liechtenstein signed two further tax information exchange agreements containing the OECD standard, on the sidelines of a European Council of Finance Ministers (Ecofin) meeting held in Brussels in November 2009.

During the meeting, Liechtenstein reiterated its willingness to implement the current OECD standard as part of bilateral tax agreements and at the level of a multilateral agreement with the European Union (EU) and its member states.

The administrative assistance agreements with the Netherlands and Belgium provide for a cross-border tax cooperation procedure governed by the rule of law. The treaty texts follows the OECD Model Tax Convention and provide for the exchange of information upon request.

Following the signing, Tschütscher announced: "Beyond today's conclusion of the agreements, we agreed talks with both countries to immediately begin negotiations about the conclusion of double taxation agreements."

It has also emerged that negotiations with additional countries, including Italy, Australia, Norway, Sweden, Finland, and Iceland, were at an advanced stage.

It was said at the time that Liechtenstein’s government was also aiming to continue talks with several existing partners on additional OECD-compliant double taxation agreements and to assume negotiations with new partners.

"Our goal is to ensure legal certainty for clients and intermediaries as well as reliable and forward-looking framework conditions in tax matters," added Tschütscher.

The following month, it emerged that the TIEA between Liechtenstein and the US went into force on December 4, 2009, following appropriate notification by the contracting parties.

It was anticipated that the agreement would enter into effect from January 1, 2010.

As a result of the agreement, the US extended the Qualified Intermediary (QI) status for Liechtenstein banks by a further six years until December 2015. As a Qualified Intermediary, financial intermediaries may continue to deal in US securities. The extension of the QI status was part of negotiations with the US on the TIEA that were successfully concluded in December 2008.

“Liechtenstein as a financial center will hereby benefit from greater long-term planning security,” explained Liechtenstein Prime Minister, Klaus Tschütscher. “This is good for our banks and also for our banks’ customers.”

In March 2010, it emerged that Germany’s Cabinet had approved a bill pertaining to the bilateral tax information exchange agreement with Liechtenstein. According to a statement from the German Finance Ministry, the agreement was to be incorporated into national law.

The TIEA was signed on September 2, 2009, in Vaduz, by Germany’s ambassador Axel Berg and Liechtenstein’s Prime Minister Klaus Tschütscher.

The TIEA contains the OECD standard, and provides that information will be exchanged upon request. This will enable tax information to be exchanged not only in cases of tax evasion, but also as part of standard assessment procedures, without the need for the state concerned to present suspicion of a tax crime.

The Liechtenstein government announced in March 2010 that negotiations for a convention for the avoidance of double taxation and fiscal evasion with Hong Kong had been concluded, and a text initialled.

The agreement is based on the OECD Model Convention for avoiding double taxation and, according to the Liechtenstein government, is tailored to the needs of a "dynamic economic relationship characterized by a low tax burden."

It was expected that the agreement would be signed some weeks after the conclusion once it has been approved by the respective governments. The agreement will then need to be ratified by the respective countries, and will apply to tax years after entry into force.

"With this agreement, we are creating enhanced legal certainty in our economic relations with Hong Kong and are opening new perspectives for the Liechtenstein industry and financial centre in the Asian growth market," said Prime Minister Klaus Tschütscher, noting that it will be of great mutual benefit to businesses and individuals.

Later that month, it emerged that chief negotiators from Liechtenstein and Uruguay had initialled an OECD-compliant bilateral double taxation agreement between the two countries, thus marking an end to the negotiations.

The text of the agreement provides for information exchange upon request.

The agreement, due to be signed shortly, will enter into force upon completion of the respective domestic ratification procedures, and will apply for tax years following its entry into force.

At this point, Liechtenstein had signed 15 agreements facilitating the exchange of tax information.

In a statement released in 2010, Liechtenstein’s Prime Minister Klaus Tschütscher announced that the government’s had adopted a proposal to create, at national level, the necessary legal basis with which to implement the international OECD standards. Swift implementation of these agreements will create a sustainable environment for the country’s financial centre and provide legal certainty for both customers and agreement partners, he added.

According to the government, within the framework of the signed agreements, the adopted, OECD compliant Tax Assistance Act provides for information exchange on the basis of specific requests, in individual cases. The government points out, however, that cooperation in tax matters will only take place provided that precise information regarding the identify of the taxpayer is submitted, together with the facts of the case, thus ruling out an automatic exchange of information (so-called “fishing expeditions”) and assistance based on information which has been illegally obtained.

In order to implement the agreement with Great Britain concluded on August 11, 2009, a special law has been adopted. Liechtenstein has ensured, through its Assistance and Compliance Program, that taxpayers in the UK, with accounts held in the Liechtenstein financial centre, fulfil their tax obligations at home. The adopted law sets the rules for implementing the compliance program.

Liechtenstein’s parliament is due to negotiate and adopt the draft law before the summer break in 2010.

During a two-day visit to Germany in April 2010, Liechtenstein’s Hereditary Prince Alois von und zu Liechtenstein held talks in Berlin with Germany’s Federal President Horst Köhler, focussing predominantly on bilateral cooperation in tax matters.

According to the Liechtenstein government, this first official meeting between the two heads of state marks a new phase in the relationship between the two countries, which began following the conclusion of a bilateral tax information exchange agreement in September 2009, and is being further developed in the ongoing negotiations on an additional bilateral double taxation agreement.

The talks centred on the current situation, as well as on the further development of cooperation. Liechtenstein’s Hereditary Prince Alois took the opportunity during the course of the discussions to emphasize the progress made between the two states and to praise the intensive bilateral exchange. The heads of state also explored the impact of the global financial crisis on both countries, and discussed collaboration both within Europe and other international organizations.

BACK TO TOP

Other International Agreements

In March 2010, the Swiss Federal Council announced its approval of both the message and draft federal decree pertaining to the treaty on environmental taxes between Switzerland and Liechtenstein.

Under the terms of the new treaty, signed on January 29, Liechtenstein will apply the same environmental taxes as its Swiss neighbour.

In 1920, Switzerland and Liechtenstein created a common economic and monetary area. According to the Customs Treaty of 1923, Swiss customs legislation, and indeed other federal legislation connected to the customs union, are also applicable in Liechtenstein.

In a bid to protect the environment, Switzerland introduced in 1998 environmental taxes designed to encourage environmentally-friendly behaviour through financial and tax incentives for materials and products, notably organic compounds, “extra light” heating oil, as well as diesel. In 2008, Switzerland then elected to introduce a tax levied on carbon dioxide emissions resulting from the use of fossil fuels.

Although these environmental taxes are not related to customs tax, given the close economic relations between Switzerland and Liechtenstein, and in order to avoid unfair competition, both the Liechtenstein and Swiss government agreed that the taxes should be similarly applied in Liechtenstein.

The new Treaty provides the basis for the application of these environmental taxes, as a separate convention. Up until now, this was covered, as a temporary measure, under the Customs Treaty.

In application provisionally as from February 1, 2010, the new Treaty has yet to be approved by the Swiss parliament, and is subject to an optional referendum on international treaties.

BACK TO TOP