International Cooperation in Tax Matters

Liechtenstein’s International Tax Policy

In addition to Liechtenstein's bilateral engagement with the US in areas such as fighting financial crimes, as one of the first non-members of the Organization for Economic Cooperation and Development (OECD) to join the Inclusive Framework of the OECD in 2016, Liechtenstein fully complies with the international standards that are developed in the area of cross-border company taxation (Base Erosion and Profit Shifting or BEPS) through its national law and treaty policy. To this end, Liechtenstein amended its tax code with effect as from 1 January 2017. The amendments included:

  • the introduction of a linking rule for dividends within corporate groups to tackle hybrid instruments and to avoid double non-taxation (as foreseen in BEPS Action 2).
  • the introduction of country-by-country reporting for multinational enterprises in accordance with OECD requirements;
  • in the area of transfer pricing: introduction of the recommended documentation requirements (in accordance with BEPS Action 13);
  • the phasing-out of the existing intellectual property box regime (or patent box) within the agreed transitional period until the end of 2020 (to comply with BEPS Action 5).

Furthermore, Liechtenstein does not have any harmful regimes as confirmed by the Forum on Harmful Tax Practices (FHTP).

In addition, in 2017 Liechtenstein was among the first signatory States to the Multilateral Convention of the OECD (MLI) to Implement Tax Treaty Related Measures to Prevent BEPS. This agreement modifies the application of existing bilateral double taxation treaties by implementing agreed minimum standards to counter treaty abuse and to improve dispute resolution mechanisms while providing flexibility to accommodate specific tax treaty policies.

Liechtenstein has the necessary legal basis for exchange of information on request as well as automatic and spontaneous exchange of information in place. They are all in line with international standards and working effectively. On the basis of this legal framework, which is in line with international and European standards in tax matters, Liechtenstein has so far concluded 17 Double Taxation Agreements (DTA), including a DTA with Germany and a DTA with the United Kingdom.

Liechtenstein has ratified the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC), which has been applicable in Liechtenstein since 1 January 2017. The MAC allows for a wide range of mutual cooperation in tax matters. The MAC allows for exchange of information upon request (EOIR). Liechtenstein has a proven record of the effectiveness of its EOIR framework. Phase 2 Peer Review of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes was completed in October 2015 with the result of the rating of “Largely Compliant,” (sharing the same rating as the United States, Germany, and the UK, among others).

Furthermore, based on the MAC Liechtenstein has signed the CRS Multilateral Competent Authority Agreement (MCAA-CRS) in October 2014 which creates the multilateral framework for automatic exchange of information (AEOI). The current AEOI network of Liechtenstein covers 88 jurisdictions. Under the AEOI-Agreement between Liechtenstein and the EU, which is applicable since 1 January 2016, Liechtenstein has successfully conducted the first automatic exchange with the EU Member States in September 2017, based on the “early adopter” timelines Liechtenstein has committed to. Along with the introduction of the AEOI the due diligence requirements were amended in 2015. The Liechtenstein AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) framework is based on the 4th EU Anti Money Laundering Directive (2015/849) which fully takes into account the 2012 Recommendations of the Financial Action Task Force (FATF).

Liechtenstein has also signed the Multilateral Competent Authority Agreement on the exchange of Country-by-Country Reports (MCAA-CbC) in January 2016. Also, the Peer Review Report for Country-by-Country Reporting shows no deficiencies.

Liechtenstein and the European Union

Liechtenstein’s association with the EU through its membership in the European Economic Area (EEA) entitles it to participate fully in the European Single Market, allowing for the free flow of capital, goods and services. As a business location Liechtenstein is therefore uniquely positioned, offering access to the EU Single Market (over 500 million people) as well as to Switzerland (which is not a member of the EEA) through a customs and monetary union.

Liechtenstein entertains a close bilateral cooperation with the European Union on tax matters. As a member of the EEA, Liechtenstein has implemented corresponding common market legislation of the European Union. Its tax system is based on the applicable European and international standards, including the EU’s rules on State Aid in the field of taxation which prohibit selective corporate tax regimes that specifically favor offshore business. Compliance with State Aid rules in the field of taxation is even enforced by a supranational body, the EFTA (European Free Trade Association) Surveillance Authority (ESA) and the EFTA Court. ESA is the competent authority under the Agreement on the EEA to monitor and enforce the proper application of EU law by the three EFTA States Iceland, Liechtenstein and Norway. ESA works in tandem with the European Commission who assumes the same supervisory functions in respect of EU Member States.

In 2010, Liechtenstein comprehensively overhauled its tax legislation. The goal of the tax reform was to modernize the Liechtenstein tax system and to align it with international developments as well as European taxation standards. For that purpose, some parts of the new Tax Act were assessed and approved by the ESA, which has confirmed that Liechtenstein’s corporate tax legislation is in conformity with the EU’s State Aid provisions in the field of taxation.

The EU’s Anti-Money Laundering Directives are also applicable to Liechtenstein under the EEA agreement. Liechtenstein has implemented the 3rd Money Laundering Directive and has completed implementation of the 4th Directive for which the deadline is June 2017. In particular, the wider definition of a “beneficial owner” has already been implemented in national due diligence legislation, namely in an amendment of the Due Diligence Ordinance that was adopted in September 2015. Moreover, serious tax crimes as are qualified as predicate offences in Liechtenstein legislation since January 2016, as foreseen by relevant EU legislation.

In addition, on 7 June 2018, the Liechtenstein Parliament adopted another amendment of the tax code to comply with recommendations of the EU’s Code of Conduct Group for business taxation to ensure tax transparency, fair business taxation and the implementation of BEPS minimum standards. The legislative amendment entered into force in early July 2018.

In 2017, the EU’s Code of Conduct Group had identified a need for legislative adaptations in Liechtenstein in few areas of corporate taxation to address the absence of anti-anti provisions regarding tax-exemptions for dividend payments or capital gains, the virtual interest deductibility on equity as well as the asymmetrical treatment of capital gains and losses. To address these points, the government had agreed to amend the challenged provisions in tax legislation latest by the end of 2018. The corresponding legislative changes that already entered into force in July 2018 will allow to ensure that Liechtenstein is listed by the EU as one of those countries whose business tax system is considered as compliant with EU standards.