LDF and Swiss-UK Tax Agreement
Mr Baker has relevant capital of GBP 48,748,062. His tax rate according to the formula is 23.4%.
Thus he has to pay a total tax burden of GBP 11,402,066. Penalties and late payment interest are not
owed under this agreement. As was shown in 2.4.4, under normal disclosure Mr Baker would face a
tax burden of GBP 13,395,534 or 27.5% of the total assets. Thus the Swiss-UK tax agreement would
be cheaper for him.
3.6 Impact on Legal Entities from Liechtenstein
Since the Swiss-UK tax agreement regulates the assets on Swiss accounts, some Liechtenstein entities
and foundations or their beneficiaries, shareholder or settlors might also be affected by this agreement,
because some of them use Swiss bank accounts. Only tax transparent foundations and structures with
fixed beneficiaries without ordinary taxation are affected." This means that discretionary foundations,
which do not have fixed beneficiaries according to the due diligence regulations, are not affected. An
important issue is that this discretionary design must be abided by during everyday work."
The second group of affected entities are those without an ordinary taxation. The agreement does not
provide a definition of ordinary taxation. However, based on the definition of ordinary taxation given
in Council Directive 2003/48/EC, Hosp & Langer state that domiciliary companies which are taxed
with a fixed tax burden under the former tax regime until 2014 and private asset structures” cannot be
seen as ordinarily taxable. The situation appears different for entities and foundations that are ordinari-
ly taxed under the current tax law. They are liable to unlimited tax on their earnings and gains. Ac-
cording to Hosp & Langer, the exclusion of dividends or gains on shareholdings, for example, or the
use of the notional capital interest deduction is not harmful. These exclusions are used to avoid double
taxation and to ensure financial neutrality between equity and debt.^?
In practice, determining whether a foundation is discretionary or not is not as simple as it might sound.
Many foundations are designed to be discretionary from a legal point of view if the statutes are taken
as evidence. However, it is common for the beneficiary or settlor to ask for a distribution of a certain
amount at a certain time and the foundation board often agrees. It is debatable whether such a founda-
tion can be treated as discretionary from a tax perspective.*^ In addition, some years ago when due
diligence became increasingly important, banks asked foundations for details of their beneficiaries. In
order to satisfy the banks, many trustees sent information about beneficiaries even when the discre-
^9? CH-UK Tax Agreement, 2011, art. 2, letter h, sec. 3.
^! Hosp & Langer, 2012 (1), p. 49.
^? Special tax regime under tax act, 2010, Art. 64.
^? Hosp & Langer, 2012 (1), p. 50.
#4 Liechtensteinische Steuerverwaltung, 2012, p. 3.
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