David Jetuah, Accountancy Age, Thursday 10 June 2010 at 00:30:00

Information gathered by HMRC in its drive for disclosure from Liechtensteinaccount holders could be used by other UK government agencies


The mass of information provided to HMRC from UK citizens declaring accountsthrough the Liechtenstein Disclosure Facility will be pounced upon by other UKagencies, advisers warn.

The taxman must share information with other departments, despite assurancesthat highly confidential information will stay under wraps in the amnesty.

This has left accountants and lawyers concerned as to how the advice theyhave honestly given with regards to disclosing tax in Liechtenstein will betreated if a client is later found to have made gains through criminal acts.

HMRC has already said it is ?highly likely? the number of people using thefacility will shoot up as new Liechtenstein laws calling on banks to seekevidence investors are UK tax compliant are endorsed.

At a recent event held at the British Bankers Association, advisers voicedconcerns about the flow of information from HMRC about their clients, and howtheir work would be interpreted by the agencies receiving it.

In response Andy Cole, director of HMRC?s special investigations unit,conceded it was unclear what demands could be made on the Revenue by other UKagencies and overseas jurisdictions. ?We can?t give any assurances about how taxinformation exchange agreements will be used by other jurisdictions,? he said.

Other agencies have passed information between each other previously aftervoluntary disclosures which have led to prosecutions, advisers have warned.

?There have been situations in the past where individuals have made adisclosure and another UK agency has got wind and prosecuted them off the backof it,? said Frank *Strachan, tax director at Grant Thornton. ?You could havesituations with the LDF where other UK agencies say ?we want a bite of thecherry?. There is a concern for advisers.?

Advisers face action if they are judged not to have taken reasonable care inmaking sure clients? returns are accurate. But the LDF scheme?s architects havesaid that the concerns about information leakage are overblown and secondary tothe central aim of making sure all UK citizens use the facility to declare anyunpaid tax.

Philip Marcovici, a Zurich based lawyer who acted for the Liechtensteingovernment in negotiations, said: ?It?s not a reason for them not to comply withtheir tax obligations. If they don?t want to play by the rules, then theyshouldn?t be living in the UK. There?s unlikely to be a better option to payyour tax obligations under such agreeable terms.?

The issue rests on the Memorandum of Understanding between Liechtenstein andHMRC trumping the tax information exchange agreement with Liechtenstein. TheMemorandum gives Liechtenstein the ability to control how confidential*information is provided to the taxman through the LDF until 2015, when theamnesty closes.

HMRC, or any other UK agency, is unable to use the TIEA to glean datadirectly from Liechtenstein until then. But with HMRC now receiving data fromLiechtenstein under the MoU, it would have to hand over that information toother agencies, including SOCA, the Security Services, The FSA and the SeriousFraud Office and the Financial Reporting Review Panel, if it is requested.

?They are duty bound to give the information,? said Jason Collins, taxpartner at law firm McGrigors. ?That?s why [HMRC] can?t give a blanket guaranteeabout how the information will be used.?

There are key safeguards in place to ensure the information is usually onlypassed on in cases of criminal investigations, but the fact remains that otheragencies have a knack of digging up information, whether it be fromwhistleblowers or from cross-border deals.

HMRC did exactly that when paying for information about Liechtensteinaccounts from a whistleblower.

Since the landmark deal was announced last year, HMRC has had to soothe thefears of investors, accountants and financial institutions that the confidentialdetails will be kept in-house.

HMRC?s agreement with the European principality, spearheaded by HMRC chiefDave Hartnett and Liechtenstein?s Crown Prince, is generally regarded asgroundbreaking.

?The long-term benefit to HMRC is improved UK tax compliance forLiechtenstein investors and increased tax receipts from those wishing to benefitfrom the favourable disclosure terms,? HMRC added.

In our view

HMRC has managed to pull off one of the most ambitious deals in tax avoidancehistory. Now it must ensure that the issues raised here are nipped in the bud.

Further reading:

hmrc.gov.uk/international/liechtenstein-eol.pdf