Tax information exchange agreements
Liechtenstein wants to strengthen its profile as a professional centre for internationally oriented, innovative and sustainable banking transactions. From a regulatory perspective, this will require maintaining the attractiveness of the business location and securing the stability of operating conditions. Above all, Liechtenstein can draw upon its traditional values, such as its overall economic and political stability, high standards of professional training and education and its positioning in private banking, which has evolved over the years.
The banking centre is affected by the more stringent international requirements in the core business of cross-border private banking. Politicians and market participants are taking appropriate action to reduce uncertainties. Through the «Liechtenstein Declaration» of 12 March 2009 the Principality of Liechtenstein commits itself to the global OECD standards on Mutual Administrative Assistance in Tax Matters.
By the end of 2011, Liechtenstein had signed tax information exchange agreements (TIEA) or double taxation agreements (DTA) on bilateral mutual administrative assistance in tax matters with two dozen countries. These agreements are in accordance with the OECD Model Tax Convention. One such agreement ensuring mutual legal, planning and investment certainty was signed with the Federal Republic of Germany in November 2011. Liechtenstein had already concluded a tax agreement with Great Britain in 2009, which provides for a limited disclosure programme for persons liable to UK taxation until the beginning of 2015. Banking secrecy will remain intact, however, even after the adoption of the OECD standards.
In October 2011, the Liechtensteinische Landesbank created a competence centre for tax matters («Kompetenzzentrum Steuern») in order to keep pace with the constant changes in tax legislation of the target markets. Bank-internal information platforms provide employees with important data about the tax systems of the LLB key markets.
In order to comply with foreign laws financial providers are required to implement comprehensive measures. These include the assessment, limitation and monitoring of legal and reputational risks. Against this backdrop, the banks of the LLB Group – LLB Vaduz, LLB Switzerland, LLB Österreich and Bank Linth LLB AG – issued country-specific good practice guidelines for their staff. Training courses on cross-border banking were held at locations in Vaduz, Zurich, Vienna, Dubai, Lugano and Geneva.
The Liechtenstein and Swiss banks have a primary interest in the implementation of and compliance with the cross-border banking regulations. This interest is shared by the Swiss Financial Market Supervisory Authority (FINMA) and the Liechtenstein Financial Market Authority (FMA), which have conducted and announced investigations. The requirements help the LLB Group to further improve its services and activities. In addition, we ensure a higher level of legal certainty for our clients, Bank and staff.
Additional obligations due to FATCA
The US Foreign Account Tax Compliance Act (FATCA) obliges financial institutions worldwide by agreement to identify US customers 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 Regime (QI). The US Treasury Department and the IRS have postponed the introduction of the law to 1 January 2014. The publication of the final FATCA directive and the FATCA agreements is planned for summer 2012. On 1 January 2013, the IRS will implement an electronic applications procedure for the status of Foreign Financial Institution (FFI). Applications received by 30 June 2013 will be given a status as Participating FFI (PFFI) effective on 1 July 2013.
FATCA creates a lot of additional administrative work for financial institutions with US customers. The LLB Group is planning to conclude a FATCA agreement with the IRS, which will require the LLB Group to automatically report accounts it manages for US citizens and US controlled foreign legal entities. Financial institutions that do not cooperate will be charged a 30-percent withholding tax on all payments from US sources (withholding payments).
Challenge: agreement on a final withholding tax
In autumn 2011, Switzerland and the Federal Republic of Germany as well as Switzerland and Great Britain signed new tax agreements. The aim is for the agreements to come into force on 1 January 2013. In the case of retrospective taxation of existing banking relationships, customers will have the possibility of anonymously paying a one-off flat rate tax or of disclosing their accounts. Future investment income and capital gains will be subject to a final withholding tax; after payment of the withholding tax, the tax liability in the country of residence will be deemed to have been met. Customers are able to regulate their assets, and the banks can exercise their duty of loyalty to long-standing clients.
Liechtenstein intends to negotiate an agreement with Germany which is equivalent to that with Switzerland and which enters into law at the same time in order to preclude a regulatory divide between the two financial centres.