Liechtenstein has signed an additional DTA with Monaco

On 29 June 2017 the Government of the Principality of Liechtenstein issued a press release stating that Liechtenstein has signed an additional Double Taxation Agreement (DTA) with Monaco. The DTA between Liechtenstein and Monaco is intended to increase the legal certainty for investors and strengthen the close cooperation between the two countries.

The DTA is based on the current international OECD standard. It takes into account the results of the OECD/G20 BEPS project, which is intended to prevent tax avoidance in a cross-border context. The exchange of information is regulated based on international standards, whereby the automatic exchange of information (AEOI) will be carried out in accordance with the framework of the Multilateral Competent Authority Agreement (MCAA).

We assume that the new DTA with Monaco will be approved this year by the Landtag of the Principality of Liechtenstein, which would allow it to enter into effect as of 1 January 2018.

Contacts

Martin_Meyer_09723
Martin Meyer
PwC | Director
Office: +41 58 792 42 96
Mobile: +41 79 348 36 13
Email
PricewaterhouseCoopers GmbH
Austrasse 52 | Postfach | FL-9490 Vaduz

 

 

Bieri_Ralph_70735
Ralph Bieri
PwC | Senior Manager
Office: +41 58 792 72 76
Mobile: +41 79 643 14 37
Email
PricewaterhouseCoopers AG
Vadianstrasse 25a | Neumarkt 5 | 9001 St. Gallen

Poland removes Liechtenstein from its black list

On 9 June 2017 the Government of the Principality of Liechtenstein issued a press release stating that Liechtenstein has been removed from the Polish black list of low-tax countries.

Removing Liechtenstein from the black list is a consequence of the signing of the agreement between Liechtenstein and the EU Member States to exchange information on tax matters automatically and upon request. This agreement is in force since 1 January 2016.

The removal from the Polish black list further contributes to strengthening Liechtenstein as a business location. In particular, it helps Liechtenstein based companies in the areas of transfer pricing documentation and controlled-foreign-company regulation. Liechtenstein based companies no longer automatically fall within the scope of these anti-abuse rules. Thus, anti-abuse rules only apply if the specific preconditions based on Polish legislation are fulfilled.

Contacts

Martin_Meyer_09723
Martin Meyer
PwC | Director
Office: +41 58 792 42 96
Mobile: +41 79 348 36 13
Email
PricewaterhouseCoopers GmbH
Austrasse 52 | Postfach | FL-9490 Vaduz

 

 

Bieri_Ralph_70735
Ralph Bieri
PwC | Senior Manager
Office: +41 58 792 72 76
Mobile: +41 79 643 14 37
Email
PricewaterhouseCoopers AG
Vadianstrasse 25a | Neumarkt 5 | 9001 St. Gallen

Double Tax Treaty between Switzerland and Liechtenstein

On 1 January 2017 the new double tax treaty between Switzerland and Liechtenstein (“DTT CH-FL”) entered into force. This treaty facilitates access of Swiss based companies to the EU market (because Liechtenstein is part of the European Economic Area “EEA”) and makes it much more attractive for Liechtenstein based holding companies and individuals to own shares in Swiss companies (due to a reduction of WHT to 0%/15%).

There is an increasing interest in Liechtenstein also as a holding location for companies based in other countries, in addition to the new DTT CH-FL, mainly due to the following characteristics:

  • 0% WHT on dividend, interest and royalty payments paid by Liechtenstein companies based on unilateral Liechtenstein law
  • 12.5% corporate income tax rate, participation exemption and 4% notional interest deduction
  • No CFC-regulation, however correspondence principle for hybrid financing
  • Application of EU fundamental freedoms (goods, persons, services and capital)
  • BEPS conformity (minimum standards implemented on 1 January 2017)
  • Growing network of double tax treaties with major economies (UK, Germany, Austria, Luxembourg, Malta, Singapore, Hong Kong, etc.)

Furthermore, please note that due to the EEA agreement (i.e. the 4 freedoms) and the tax information exchange agreements (TIEAs) with various EU member states no withholding tax should be applied on dividends, interests and royalties received from a subsidiary established in these EU member states.
Due to the on-going BEPS discussions, traditional holding company locations such as Luxemburg, Netherlands and the UK face challenges that were also addressed in Liechtenstein. This is how Liechtenstein meets the challenges:

  • Substance: There is a consensus that local substance will be key to apply double tax treaties. Because Liechtenstein is close to Zurich (approx. 90 min), qualified employees can relatively easy be recruited or shared between Swiss and Liechtenstein based group companies (e.g. with split working contracts). Creating financial substance (i.e. equity financing) is highly attractive for Liechtenstein based companies in the current low-interest environment due to a 4% notional interest deduction.
  • Hybrid mismatch: Because Liechtenstein does not levy WHT on dividends, interest and royalties, there is no need to employ hybrid instruments. With the implementation of the correspondence principle for hybrid financing, Liechtenstein meets the BEPS minimum standard (BEPS action 2)
  • CFC-rules/Substantial interest rules: Liechtenstein does not have CFC regulation.
  • Black Lists: Liechtenstein’s efforts in tax transparency (implementation of AEOI, TIEAs with 27 countries etc.) have led to Liechtenstein being removed from the most prominent black lists (e.g. FATF-blacklist and Italian financial transaction tax black list)
  • EU State aid: Since its inception in 2011, the goal of the Liechtenstein tax law has been compliance with EEA regulations. In fact, the EFTA-supervisory authority reviewed certain elements of Liechtenstein tax law in 2011 and 2012 and qualified them as EEA-compliant

In short, Liechtenstein becomes more attractive as an alternative holding structure compared to traditional holding locations. Especially by combining resources already available in Swiss group companies, a robust (i.e. BEPS-compliant) and tax efficient holding company structure can be established in Liechtenstein. There is a so-called “principle purpose test” embedded in the new DTT CH-FL similar to the principal purpose test provision (i.e. general anti-abuse rule) recommended by the OECD. There is not yet any practice available in this respect but we expect the same substance requirements for Liechtenstein holding companies as required by the ESTV for other known holding jurisdictions.

Blog LI - DBA

In case of any questions please contact us:

Brunner_Roman_09544Roman Brunner
PwC | Partner
Office: +41 58 792 72 66
Mobile: +41 79 676 40 63
Email
PricewaterhouseCoopers AG
Vadianstrasse 25a | Neumarkt 5 | 9001 St. Gallen

 

Meyer_Martin_09723_01
Martin Meyer
PwC | Director
Office: +41 58 792 42 96
Mobile: +41 79 348 36 13
Email
PricewaterhouseCoopers GmbH
Austrasse 52 | Postfach | FL-9490 Vaduz

Implementation of BEPS minimum standards in Liechtenstein

flaga-liechtensteinu-70-x-110-cmOn 3 May 2016 the government of the Principality of Liechtenstein published a consultation report on the amendment of the tax law. The proposed changes are expected to enter into force as of 1 January 2017.

With the changes Liechtenstein intends to implement the minimum standards by the OECD and G20 on Base Erosion and Profit Shifting (BEPS). The proposed changes include measures to avoid double non-taxation (Action 2), measures to avoid harmful tax practices, including the exchange of tax rulings (Action 5) and measures to improve tax transparency through the introduction of a mandatory transfer pricing documentation (Action 13).

Additional minimum standards such as Country-by-Country reporting (also Action 13) and the introduction of anti-abuse measures in double tax treaties (Action 6) shall be implemented in autumn 2016 in a separate law and the revision of double tax treaties, respectively.

Please read below how the proposed changes may affect our clients:

Introduction of the correspondence principle for dividends to avoid double non-taxation (Action 2)

Dividend income from domestic and foreign participations in corporations as well as capital gains on such participations are generally tax exempt in Liechtenstein. Under certain conditions, also income received from indirect participations in corporations (i.e. fund investments and investments in partnerships) may be tax exempt.
With the proposed changes, investors in Liechtenstein (shareholders or beneficiaries) shall only benefit from the participation exemption on dividend income if the payment is not tax deductible in the source country.
The introduction of the correspondence principle leads to a number of implementation issues for our clients (e.g. burden of proof regarding taxation in source country) that are currently discussed in the consultation process.

Abolishment of IP-box regime (Action 5)

In 2011 Liechtenstein introduced an IP-box regime in connection with the complete revision of its tax law. The current IP-box regime does not comply with the modified nexus approach by the OECD. Therefore, the Liechtenstein government decided to abolish the current IP-box regime with a phasing-out period of 4 years (i.e. until end of tax period 2020).
Whether a new (BEPS-compliant) IP-box regime shall be introduced subsequently is subject to further analysis by the government and not yet clear.

Spontaneous exchange of tax rulings (Action 5)

The draft legislation introduces the definition of the term “tax rulings” and describes the process of obtaining and the effect of a tax ruling.
The legal basis for the exchange of tax rulings will be article 7 of the Convention on Mutual Administrative Assistance in Tax Matters (MAC) which is currently subject to the national ratification procedure in Liechtenstein. The exchange of the tax rulings as such shall be regulated in the Act on International Administrative Assistance in Tax Matters or a separate law. Based on the current state of knowledge, we understand that the following categories of tax rulings may be exchanged:

  • Rulings related to preferential tax regimes;
  • Unilateral advance pricing agreements or other unilateral cross-border rulings in respect of transfer pricing;
  • Cross-border rulings providing for a downward adjustment of taxable profits;
  • PE (permanent establishments) rulings;
  • Related party conduit rulings;
  • Any other type of ruling agreed by the Forum on Harmful tax practices giving rise to BEPS concerns.

The consultation report does not specify whether tax rulings issued on or after 1 January 2010 that were still in force at 1 January 2014 will be subject to the ruling exchange (as foreseen in the OECD Report on Action 5). Practical questions affecting our clients are currently discussed in the consultation process (e.g. based on which criteria Liechtenstein will judge whether a tax ruling is still in force).

Mandatory transfer pricing documentation (Action 13)

Until now companies in Liechtenstein were not obliged to prepare a transfer pricing documentation. Based on the draft legislation, in future all companies will be obliged to provide upon request by the tax authority (i.e. no periodical filing) documentation regarding the adequacy of transfer prices of transactions with related companies or permanent establishments.
Large companies have to prepare the transfer pricing documentation based on an internationally accepted standard. If a company exceeds the following three criteria, it qualifies as a large company (based on Liechtenstein company law):

  • Total assets CHF 25.9 Mio.
  • Net revenue CHF 51.8 Mio. and
  • Annual average of 250 full time employees.

Other Amendments

The draft legislation also contains other changes that are not linked to the implementation of BEPS. In particular, compensations paid to foreign corporations in accordance with their role as a member of the board of directors or management of a Liechtenstein entity shall be subject to withholding tax (i.e. foreign corporations will be subject to limited tax liability in Liechtenstein).

Draft consulation report

Click here to see the draft consultation report.

If you have any questions, please contact me.

Liechtenstein Proposes First Beneficial Ownership Registry

Interview on Bloomberg BNA

flaga-liechtensteinu-70-x-110-cmLiechtenstein companies for the first time would have to disclose the identities of their ultimate owners under a proposal to come in line with European anti-money laundering recommendations.

But in the Liechtenstein tradition, practitioners say, that information wouldn’t be publicly accessible.

The 193-page consultation, released for comment July 12, proposes to require all financial intermediaries who enter a business relationship to identify the contractual parties, the beneficiaries and the origin of the assets and submit this information to the principality’s Financial Intelligence Unit. It also proposes creation of the principality’s first beneficial ownership registry.

Changes would come in amendments to jurisdiction’s 2008 Due Diligence Act.

High Risk

The proposed changes aim to implement into Liechtenstein law the Fourth EU
Anti-Money Laundering Directive (EU 2015/849), which requires EU member countries to track the beneficial ownership of various financial vehicles to prevent funds from being used for terrorism and various financial crimes.

Liechtenstein isn’t a European Union member country, but as a member of the European Economic Area it is required to transpose this directive into its national legislation.

The changes are also aimed at implementing recommendations from the International Monetary Fund, which assessed the extent to which Liechtenstein met the global standards against money laundering and terrorist financing set out by the Financial Action Task Force intergovernmental body in 2014.

The 2014 IMF report said Liechtenstein’s financial sector heavily focuses on private banking, wealth management and non-resident business, which it said put the country at “high risk” for money laundering. The IMF recommended a review of all financial secrecy provisions and advised Liechtenstein authorities to require enhanced due diligence from trust and company services providers.

“Liechtenstein Tradition.”

Martin_Meyer_09723Martin Meyer, tax director at PwC in Liechtenstein, told Bloomberg BNA July 15 that both the amendments to the Due Diligence Act and the draft law establishing a beneficial ownership registry fall squarely within the “Liechtenstein tradition.”

Noting that Liechtenstein’s role as a financial hub and its extensive private wealth sector, he said successive administrations have always put the protection of clients’ information first.

He said the proposal doesn’t provide public access to the beneficial ownership registry. “It only grants access if a real interest in knowing or receiving such information exist, for instance in case suspicion of money laundering or financing of terrorism exists,” he said.

“Liechtenstein wants to protect the information of the individual to the extent possible, but also comply with all global standards,” Meyer said. “As a member of the European Economic Area, they have to implement EU law to comply with EU standards.”

If you have any questions, please contact me.