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Developments Pertaining To The Bilateral Tax Treaties And To Their Application And Interpretation.

Article Excerpt
Liechtenstein as a member of the European Economic Area (EEA) but not of the European Union, is obliged to implement the EU Directives and has implemented nearly all of them into its own law. Liechtenstein like Switzerland, Austria and Luxembourg takes pride in its privacy laws which have existed since the beginning of last century. The new law on due diligence enacted on 1 January 2001 has already included the provisions of the EU Directive on money laundering to become effective as at 15 June 2003.

Since 1st January 1995 Liechtenstein and Switzerland have had a treaty for the avoidance of double taxation in relation to interest from loans secured by mortgage, income from employment, and annuities and pensions. Prior to this double tax treaty special agreements existed with certain Swiss Cantons regarding taxation of succession and donations. Even without such agreements the hitherto applied rules will continue to be respected.

Another tax treaty which covers a broader tax field was concluded with Austria. However this tax treaty does not apply to the so-called tax-privileged (domiciliary and holding) companies if the shareholders are domiciled outside of Liechtenstein.

The Liechtenstein tax law does not provide extensive rules for the avoidance of double taxation and there are many situations under which double taxation may occur for which the law does not provide remedies, especially for legal entities. However, the tax administration is often willing to grant relief from Liechtenstein taxes in cases where its residents are subject to tax both in the country of source of the income and in Liechtenstein in a manner which it considers unfair. Besides this, the local taxes have sought to take into account the Liechtenstein competition in the international financial environment.

The Liechtenstein domiciliary and holding companies which are not taxed on their profit, which is normally derived from proceeds outside of Liechtenstein, do not suffer any double taxation as the tax already paid abroad is not further taxed in Liechtenstein.

As with other small countries which offer a special favourable tax regime Liechtenstein experiences...