| |
Liechtenstein structures will be within savings tax scope 
 Download Summary of savings tax impact on Liechtensteine.
Nearly 100,000 entities and legal arrangements are established in Liechtenstein at the behest of non-residents. These structures are purportedly used for succession planning, creditor protection, family support, philanthropy or confidentiality. Considering there are onshore taxable facilities that do these tasks equally well, one assumes the added effort, cost and risk to use Liechtenstein facilities are primarily motivated by fiscal benefits :-
- Aktiengesellschaft A.G. [company limited by shares]
- Gesellschaft mit beschrenker Haftung GmbH [private limited company without shares]
- Societas Europaea - SE
- Anstalt [establishment, commercial and non-commercial without shares]
- Stiftung [foundation]
- Treuunternehmen [registered trust or trust enterprise]
- Treuhandschaft [trust]
- Kommanditgesellschaft, Kollektivgesellschaft - Partnerships [Limited, collective, simple, occasional & silent] - Not taxed on income from assets
How Liechtenstein structures avoid tax:
| Liechtenstein foundations, establishments and trusts have to date successfully avoided international taxes as they are crafted to present an image that no party involved can have a tax liability. This is commonly done in 8 standard stages: |
- Separate legal ownership of assets from the principal contributor:
The principal contributor gives away their assets to someone else to manage on behalf of unnamed beneficiaries. |  | - Mask the original source of assets:
Utilise an agent /nominee to contribute the assets on behalf of the principal contributor. The only name on public record as the provider of funds is the nominee / agent, e.g. the lawyer who founds the foundation. |  |
- Utilise a temporary holder / manager of the assets:
Tax cannot apply to trustees / council because:- not beneficial owners, and
- not resident of the tax agreement country
|  | - Disguise control of the assets:
If the principal contributor is seen to be controlling the assets after giving it away, he may be liable for tax. Therefore the principal contributor manages the assets indirectly via an undisclosed letter of wishes, bylaws, appointment of protector, etc. |  |
- Ensure no beneficiary is immediately entitled to income:
No specific beneficiaries are named. Therefore no tax payable. |  | - Perform alchemy on income:
Convert the character of any income into a tax efficient distribution, such as charity contribution, consulting fee, wage, loan, etc. |  |
- Add entity / legal arrangement layers to further buffer ownership of assets
Foundations and trusts invariably hold their assets via an offshore company. This enhances confidentiality, simplifies holding of assets anywhere in the world, allows income to be distributed as salaries, further distances the beneficial owner from ownership, ensures the foundation or trust never holds assets directly and appointment of third party directors to obfuscate true management.
|  |
- Present a restricted view of structure to bank:
The bank holding the structure's account is the Paying Agent responsible for withholding tax. However, with a restricted view presented to the bank, an immediate beneficial owner cannot be identified. As no-one supposedly owns the assets, the bank cannot apply any withholding taxes. |  |
How the EU savings tax amendments will tackle Liechtenstein fiduciary structures , is described in detail in this guideline on Paying Agents Upon Receipt:
- Structure becomes the Paying Agent Upon Receipt:
To counter the restricted view of the structure presented to a bank, the savings tax directive amendment moves the Paying Agent responsibility away the bank and onto the management of the structure, if it is managed within the the savings tax territory. The logic being the structure has an unimpeded true view of all parties involved.
 |
- The principal contributor is the beneficial owner:
The amendment takes into consideration that it will be highly unlikely to identify a beneficiary immediately entitled to the payment received. In this case, the principal contributor of assets will be deemed the beneficial owner, irrespective if the settlement is irrevocable or not. The logic being that tax liability remains yours until transferred to someone else with a tax liability. In limbo doesn't qualify for exemption. Note, this even applies to Anstalts with no founder rights. |  |
- Agent / Nominee is transparent:
The savings tax directive looks through the nominee founder / settlor / shareholder. A lawyer used to establish a foundation is merely an agent founder acting on behalf of the principal founder. The beneficial owner is deemed to be the individual who initially contributes the assets, directly or indirectly. According to the EU directive on money laundering and anti-terrorist financing, a nominee is a trust and company providing service and is therefore a candidate for Paying Agent Upon Receipt responsibilities. |  |
- Paying Agent Upon Distribution if no contributor identifiable:
In the event that a principal contributor is not identifiable, e.g. for a deceased settlor, then the structure becomes a Paying Agent Upon Distribution and must apply the savings tax to any individual who becomes entitled to the payment within 10 years. |  |
- No more dummy charities:
Trusts or foundations set up for charitable purposes will only be exempt from Paying Agent Upon Receipt responsibilities if they serve:-- exclusively for charitable purposes, and
- for the public benefit.
Mixed purpose or private charity foundations will thus be in scope. | |
- Pierce ownership of multi-layers of holdings
If the foundation / trust / company owns its assets through a subsidiary entity / legal arrangement, then clearly the management also controls the subsidiary and hence will be deemed the Paying Agent Upon Receipt for that subsidiary. Consequently the Paying Agent Upon Receipt will have to identify the ultimate beneficial owner of the subsidiary. | |
- Bank accounts in Singapore / Dubai / Bahamas/ etc. also in scope:
A obvious reaction to move the structure's bank account beyond the savings tax territory does not avoid the savings tax. The Paying Agent Upon Receipt must apply the savings tax provisions irrespective of where the assets are held. This is similar to an economic operator securing interest from anywhere in the world. |  |
- Run, but you can't hide:
A fiduciary structure fleeing beyond the savings tax territory, e.g. to a Singapore trust, will not avoid the savings tax if the new structure is still effectively managed from within the savings tax territory. if the trustee, council or director is based in Liechtenstein, then the management will remain the Paying Agent Upon Receipt, and consequently the new structure will be in scope. |  |
- External Paying Agent payments to Liechtenstein entities / arrangements:
Swiss / Luxembourg banks are copious users of Liechtenstein structures. In order to notify authorities of the existence of Paying Agents Upon Receipt, banks must report interest payments to untaxed entities / legal arrangements managed within another savings tax territory, else withhold 35% tax, irrespective of the eventual identity of beneficial owner:Art. 11(5) - forces banks in Switzerland and Luxembourg to either :- - disclose to Liechtenstein tax authorities on interest payments to Liechtenstein structures, else
- withhold tax , irrespective if the beneficiaries are EU residents.
This may not be an issue because even though Swiss banks have never automatically reported on bank transactions, the receiving party of the information is the Liechtenstein tax authorities and hence may not be a problem. |  Art 11(5): During the transitional period, Member States levying withholding tax may provide that an economic operator making an interest payment to, or securing such a payment for, an entity or a legal arrangement, which has its place of effective management in another Member State, shall be considered to be the paying agent in place of the entity or legal arrangement and shall levy the withholding tax on that interest, unless the entity or legal arrangement has formally agreed to its name if any, its legal form, its place of effective management and the total amount of interest paid to it or secured for it being communicated. |
| Example how savings tax will pierce ownership of layered structures | Foundation holds assets using a BVI or Panama company it controls
- The Swiss bank is the economic operator paying interest to the BVI / Panama company
- The economic operator is supposed to inform the competent authorities that a payment is being made to an untaxed entity / legal arrangement (BVI or Panama company) managed within another savings tax territory (Liechtenstein). Art 11(5) - If Switzerland does not exchange information, the bank must then apply a 35% withholding tax, irrespective of the beneficial owner.
- The Liechtenstein foundation council remains the Paying Agent Upon Receipt for the BVI / Panama company for interest received not subject to withholding tax.
- The council must apply the savings tax, to either:
- the principal contributor being deemed the beneficial owner, or
- the council becomes a paying agent upon distribution and must keep track of who becomes entitled to the interest within 10 years
|
|
