So the Liechtenstein Disclosure Facility (LDF) has finally closed (on 31 December 2015) to new registrations. There were no fireworks and no celebrations to mark the passing of the LDF on New Year’s Eve and for those with tax disclosures to make who didn’t nor should there have been, as they have lost a very valuable opportunity.
The timetable of the LDF moved twice, but after 76 months it is now gone forever, along with the Crown Dependency (CD) disclosure facilities (hopefully all were aware that the CD disclosure facilities were closing nine months earlier than originally scheduled); all to be replaced by another carrot but not one as palatable as those just closed.
As mentioned in the last edition of offshore messenger, the new carrot is still to be announced in any detail, but it is expected to start early in 2016 and run through to mid-2017. By that time HMRC expects to be inundated with overseas investment information from over 90 countries that have signed up to the automatic exchange of information under the Common Reporting Standard.
The new disclosure facility will not offer immunity from prosecution and the penalty framework will be less generous, but it has to be made attractive enough for the ‘last chance saloon’ to be financially advantageous for both the individual and HMRC.
The alternative to not making a disclosure through the new facility will depend on the circumstances, the nature of the tax irregularity and who contacts who.
HMRC’s principal tool, when there is suspicion of serious fraud, is to issue a notice that sets out Code of Practice 9 (COP9). The COP9 procedure can also be requested by a taxpayer making a voluntary disclosure. Regardless of whether it is a voluntary disclosure or otherwise, the individual will have to sign up to a contract accepting they have committed fraud and will co-operate fully, meet with HMRC, and agree the scope of a full disclosure report with their agent and HMRC.
For those with undisclosed offshore assets, the offshore penalty regime introduced in 2011 makes for unpleasant reading, as this increases the highest penalty chargeable from 100 per cent to 200 per cent (subject to the territory involved) but, if the behaviour behind the lost tax revenue was ‘deliberate and concealed’, then by making a voluntary disclosure a significant penalty reduction of 40 per cent can be achieved for years 2011/12 onwards. HMRC does consider other mitigating factors, but these have to be negotiated and agreed to lower the overall penalty.
When you consider the lengths and efforts that taxpayers and their advisers have to go to if a disclosure is made through COP9, and outside of the rather sanitised and prescribed opportunities offered by the disclosure facilities, you can see why the passing of the LDF and CD facilities is to be lamented. However, the yet to be announced facility must be examined closely and taken seriously as the last chance saloon opportunity to come clean at the best possible value.