An "Exaggeration"

The BBC report that the Chancellor is expecting a windfall of £1BN in tax, being monies that should have been paid by those who have tried to evade tax by holdings secreted in Liechtenstein.

HMRC struck an agreement last month with Liechtenstein to exchange information.

The theory is that up to 5,000 British investors are thought to have funds in secret accounts in the country, this could mean an average pay-back of £200,000.

All very well, but the agreement between HMRC and Liechtenstein states:

"TIEA (Tax Information Exchange Agreement) goals and protections: The TIEA provides a number of protections designed to assure that exchange of information does not compromise the considerable privacy rights accorded to persons making use of the Liechtenstein financial centre.

Protection of existing clients:

The Liechtenstein Government has the right to decline a TIEA request for information for clients who have Liechtenstein accounts or Liechtenstein company or fiduciary structures as of 11 August 2009 (the date of signing of the TIEA).

o Purpose: This protection is designed to permit existing clients who are persons
connected to the UK for tax purposes to take the time necessary in order

(a) to consider carefully their particular factual situation and the substantial attractions of the unique and favourable disclosure facility negotiated between the Liechtenstein Government and HMRC and

(b) to obtain proper advice on the best approach for the specific client to addressing any tax irregularities.

o Criminal exception: This protection will not apply in cases that relate to a criminal tax matter in respect of which the requesting party has formally commenced a criminal investigation (as defined in the TIEA).

o Exit requirement: For those existing clients who decide to close their
Liechtenstein accounts and transfer out, liquidate or terminate their Liechtenstein
companies or fiduciary structures before April 2015, this possibility of protection
by the Liechtenstein Government of their information continues indefinitely in the
future....

Protection against retroactive application: Where neither of the protections above
applies, the information exchange is still limited to taxable periods that begin in 2010 in respect of criminal tax matters or after March 2010 for all other matters."

This means, to my reading anyway, that a determined tax evader can close his/her account and move it to another tax haven safe in the knowldege that the agreement with Liechtenstein guarantees confidentiality.

What about the fact that tax evasion is a criminal act?

HMRC will have to have commenced a criminal investigation:

"Criminal exception: This protection will not apply in cases that relate to a criminal tax matter in respect of which the requesting party has “formally commenced a criminal investigation” (as defined in the TIEA)."

Does HMRC really have the resources to start criminal investigations into the alleged 5,000 tax evaders sitting in Liechtenstein?

I doubt it.

The £1BN is most assuredly an "exaggeration" designed to grab the headlines.

Tax does have to be taxing.

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