Is Liechtenstein going for automatic info exchange? No. This is a trick

There has been quite a bit of discussion today and yesterday about news that Liechtenstein has decided to strike a "Rubik" styled tax deal with Germany - and, shock horror! that it would go for an automatic information exchange option. As the FT Deutschland put it yesterday:

"Liechtenstein wants to shed its image as a tax haven. The Principality plans to exchange information with Germany, under a modeled based on the [German-Swiss "Rubik" tax deal.] However, this should happen automatically - then the customer has no way to protect his identity."

(A decent English-language appraisal of the underlying Tages Anzeiger story is here.) Any deal would be modelled on the Swiss-German tax deal, it seems.

Automatic information exchange? Is Liechtenstein coming in from the cold?

No, no, and thrice no. Don't be deceived. This is a trick.

Here is the killer fact that everyone must know. Everything that Liechtenstein does in this arena - and that means absolutely everything, the whole kitchen sink (OK, except for a few tiny oddities) - will be decisively outside the scope of any kind of Rubik deal. Liechtenstein is even worse than Switzerland in this respect.

There will be no information exchange, and no tax raised.

How so? Well, we know this for three big reasons.

First, Liechtenstein is a participating member in the EU Savings Tax Directive, and if it were really serious about automatic information exchange, it would simply flip its option under the Directive from 'withholding tax' to 'automatic information exchange.' But no, it has chosen to negotiate for a hugely complex (and, as we have demonstrated, utterly useless) bilateral deal with Germany. Why? Well, the answer comes later in this post.

Second, look at the numbers. Despite having perhaps 100,000 entities and arrangements such as foundations, anstalt, stiftung holding perhaps €500 billion (which includes such monsters as the IKEA empire), and CHF 170 billion (or €140bn) in client assets managed by Liechtenstein banks, a good chunk of them German, Liechtenstein in 2010 produced the grand total of €7.8m in revenue under the EU Savings Tax Directive.

Yes, just 7.8 million.

Assume perhaps a 3.5% interest rate and the EUSTD's 20% tax rate, and you can work out from that 7.8m figure that the EUSTD captures just over €1 billion in assets - which is less than one percent of the value of what Liechtenstein banks manage.

Third, the reason why the EU STD captures so little is because Liechtenstein specialises in those 'ownerless' structures such as foundations and the anstalt (the Alpine equivalent of the more Anglo-Saxon discretionary trust) which escape the current version of the EU Savings Tax Directive, because the beneficiary cannot be identified (section 3.1 here explains how).

Now the EU STD is being tightened up to include those structures - but Rubik deliberately excludes them. Here's the relevant section:

"An individual resident is not considered to be a relevant person with regard to assets of associations of persons, asset structures, trusts or foundations, if it is not possible to ascertain the beneficial ownership of such assets, e.g. due to the discretionary nature of the arrangement."

As we've remarked before, that is a flag planted squarely in the Rubik deal saying 'evade me here.' These are bread and butter tax evasion and financial crime vehicles, and every last man jack of these structures is decisively outside Rubik's scope. Rubik will not touch them.

Germany will get no information, and no tax, from this deal. Nada. Rien. Nichts. What information does flow will already be provided by the European Savings Tax Directive.

As we have repeatedly pointed out, the main purpose of the Swiss Rubik deals is political: to kill European progress on transparency in order to protect Switzerland's secrecy industry. Why, the Swiss Bankers' Association even admitted recently that this was the main purpose.

A Liechtenstein-Germany deal isn't signed yet. They are only mulling it. We believe that the German-Swiss deal is going down, and so is this one.

We're just saying: don't be fooled by this announcement. It is a trick, to try and bolster crumbling support for Switzerland's secrecy project.