Original article by Kirsten Hastings  - Originally published on International Adviser Website

Liechtenstein and the EU Commission have signed an agreement on the automatic exchange of information (AEOI), which will ensure greater transparency and cooperation between tax authorities.

Under the new agreement, which was signed on Wednesday, Liechtenstein and the 28 nations of the European Union will automatically exchange information on the financial accounts of each other's residents from 2017.

Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs, said: "Today the EU and Liechtenstein are sending out a clear message: we are partners in the international campaign for greater tax transparency.

“We are pulling in the same direction to create more openness and cooperation between tax authorities and to thwart those who seek to evade paying their fair share of tax.”

Full disclosure

Under the new agreement, member states will receive the names, addresses, tax identification numbers, and dates of birth of their residents with accounts in Liechtenstein, as well as other financial and account balance information.

The enhanced information exchange, which is fully in line with the new OECD/G20 global standard for the automatic exchange of information, will help tax authorities track down tax evaders.

“Importantly, it will allow tax authorities to verify whether their taxpayers have correctly reported all their assets; ie including those held outside their territory in another AEOI state and whether these assets have been taxed."

It will also act as a deterrent for those who hide income and assets abroad.

The EU signed a similar agreement with Switzerland in May this year, while negotiations are being finalised with Andorra, San Marino, and Monaco.

Liechtenstein Disclosure Facility

In July 2015, UK advisers were warned that time was running out to utilise the Liechtenstein Disclosure Facility (LDF), an agreement between Liechtenstein and HM Revenue & Customs (HMRC) which offers clients with undeclared offshore assets the opportunity to anonymously regularise their tax affairs without criminal prosecution.

Launched in 2009, the facility was originally due to close in April 2016, but will now close at the end of 2015.

According to independent marketing consultant Peter Carnell: “In 2015, so far, 500 registrations have been made with 479 completed disclosures. HMRC will probably now raise about a third [of the £3bn ($4.6bn, €4.2bn) total] it hoped to raise.”

Carnell attributes this shortfall to how poorly LDF was publicised.

The very advantageous terms, which include immunity from prosecution, will never be repeated again, he advised. Those with undeclared offshore assets, who fail to take advantage of LDF before the window closes, will face the full force of HMRC.   

“All of these things were known, but were not communicated effectively enough, in my view, to accountants, solicitors, intermediaries, or to advisers,” Carnell told International Adviser.   

Time running out

In future, information about financial accounts that is required to ensure tax is paid will be automatically transferred between the countries involved. Individuals with undeclared offshore assets are running out of places to hide, Carnell cautioned.

He continued: “The first exchanges will take place in 2017. Other countries, including Switzerland, plan to exchange information for the first time in 2018. Passive legal entities will be included, meaning private individuals standing behind foundations and trusts will be identified. 

“Importantly, it will allow tax authorities to verify whether their taxpayers have correctly reported all their assets; ie including those held outside their territory in another AEOI state and whether these assets have been taxed.

“There are two months left for advisers to alert their clients to the LDF and the generous terms it offers as an amnesty before the opportunity disappears. Time is now very short,” Carnell warned.  

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