Financial Transparency Coalition

I’m not going to get over-excited, I hope, but I think the new UK / Liechtenstein Tax Information Exchange Agreement moves information exchange into a new era.

This deal is like no other Tax Information Exchange Agreement. Take this from the preamble:

The Government of the Principality of Liechtenstein and the Government of the United Kingdom of Great Britain and Northern Ireland (together “the Contracting Parties”) desiring to:

(a) regulate the exchange of information with respect to taxes between the Contracting Parties and facilitate tax cooperation and taxpayer assistance, and

(b) assist the maintenance and development of the Principality of Liechtenstein’s financial services industry,

have on this date reached an understanding covering various matters including the introduction by the Government of the Principality of Liechtenstein of a five-year taxpayer assistance and compliance programme and the introduction by the competent authority of the United Kingdom of a five-year special disclosure facility.

It is the Contracting Parties’ intention that by the conclusion of the five year period contemplated by the taxpayer assistance and compliance programme, there will be no beneficial owners who are liable to taxation within the jurisdiction of one Contracting Party who are using the laws of the other to disguise such liability without paying appropriate tax in the manner contemplated by the understanding.

Then look at the standard TIEA. You’ll see they are poles apart.

The standard TIEA is, to all intents and purposes, a passive document. The tax haven / secrecy jurisdiction signs it, sits back and waits for something to happen. In the case of the rush of them with the Faroe Islands I am sure nothing will ever happen. I suspect that may be true of others: the Belgian / San Marino one, for example.

But even if something happens the entire onus for action is on the requesting party, which will almost always be the major state. And only when they have surmounted the enormous impediments to action built into the standard TIEA will they actually have to respond to the request received, to which the answer can be ‘sorry, can’t do’.

Not so in the case of the Liechtenstein deal: this deal requires action of Liechtenstein, action that will be audited. What is more, that action has a timescale attached to it and a performance criterion is set: there will be no UK tax evaders left in the place after five years.

This is something altogether new in information exchange: so new I’ll give it a name: Proactive Information Exchange (PIE), giving rise to Proactive Information Exchange Agreements (PIEAs).

Liechtenstein is now a party to ensuring tax compliance in the UK (as is the UK to ensuring tax compliance in Liechtenstein, I should add): and it’s not a passive party, but an active one. It has a duty to ensure that no one uses its secrecy to evade UK tax (and vice versa, which is not without problems for the UK – which is why I also welcome this deal).

I mentioned the OECD meeting planned for 1-2 September yesterday. This deal blows the agenda for that meeting apart in my opinion: Tax Information Exchange Agreements look crazy when something like a PIEA might be available.

Where now for information exchange?

Well, I stick by the need for Automatic Information Exchange (AIE), and the need for an agreement on what must be exchanged to make AIE work of the sort I have proposed. But all credit to the UK’s HM Revenue & Customs: we now have a new agenda of PIEAs into which AIE can fit – and that is very good news indeed.