S. 349Chapter 35 Liechtenstein: Legal Protection in Requested State

Martin Wenz and Patrick Knörzer

35.1. Introduction

The Principality of Liechtenstein has undergone fundamental changes in the area of tax information exchange during the last years. On 12 March 2009, the government committed itself to the full application of the OECD standards of cooperation in tax matters in the (First) Liechtenstein Declaration. On 1 September 2010, the Law on Tax Information Exchange entered into force that defines the national procedure in tax information exchange cases, offers legal protection for the information holder and the taxpayer and provides the basis for decisions of the Supreme Administrative Court and the Constitutional Court interpreting the respective double taxation conventions (DTCs) and tax information exchange agreements (TIEAs). In the following years, many TIEAs and DTCs have been signed and entered into force, all complying with the OECD standard. On 14 November 2013, the (Second) Liechtenstein Declaration was published in which the government declared its willingness to conclude bilateral agreements on automatic exchange of tax information based on the future OECD standard. Recently, on 21 November 2013, Liechtenstein also signed the OECD/Council of Europe Multilateral Convention on Mutual Administrative Assistance in Tax Matters. On 29 October 2014, Liechtenstein signed the Multilateral Competent Authority Agreement (MCAA) at the Global Forum on Transparency and Exchange of Information for Tax Purposes in Berlin regarding automatic exchange of information as one of 51 countries. From 2017, Liechtenstein as a member of the Early Adopters Group will exchange tax information automatically on tax years from 2016 onwards.

In Liechtenstein, legal protection of the respective tax information holder is granted in a special national appeal procedure laid down in the Law S. 350on Tax Information Exchange and also in the Constitutional Court Act. This appeal procedure involves the Supreme Administrative Court and the Constitutional Court of the Principality of Liechtenstein. Of course, this procedure takes some time until the final decision on the lawfulness of the tax information request is made. The national provisions determine whether the tax information is to be submitted to the requesting state before or after the end of this procedure. If the information holder is granted a suspensory effect, the tax information must not be transferred until the final court decision.

As a result, a conflict between the aims of legal security on the one hand and an effective tax information exchange on the other hand can occur. According to the OECD and the Global Forum on Transparency and Exchange of Information for Tax Purposes, an exchange of information for tax purposes is effective when reliable information, foreseeably relevant to the tax requirements of a requesting jurisdiction, is available, or can be made available "in a timely manner", and there are legal mechanisms that enable the tax information to be obtained and exchanged. The government states that the duration of an appeal procedure in TIEA matters should take about 4 but not more than 6 months.

In the case analysed in this contribution, the provisions on the tax information exchange procedure laid down in the Law on Tax Information Exchange and the Constitutional Court Act were scrutinized regarding the latter by the Constitutional Court, or to point it another way, the Constitutional Court had the opportunity to check whether its "own" procedural provisions laid down in the Constitutional Court Act concerning the suspensory effect were in conformity with the principles of the Liechtenstein Constitution.

35.2. Facts of the case

This case deals with an exchange of tax information request by the Danish fiscal administration under the TIEA between Liechtenstein and Denmark, which follows the OECD Model and the OECD Global Forum's Model Agreement on Exchange of Information on Tax Matters, concerning two named Danish-resident individuals who are supposedly the owners of an S. 351establishment resident in Liechtenstein. The Liechtenstein tax administration issued an official notice containing the requested tax information, including the statutes and tax return of the establishment, the beneficial owner of the establishment and the members of the administration board. Against this notice, the Liechtenstein-resident financial intermediary raised an appeal before the Supreme Administrative Court and, after losing there, before the Constitutional Court, and applied for a suspensory effect of the procedure.

The Constitutional Court had to apply the national rules for the provisional procedure in tax information exchange matters and had to scrutinize them for conformity with the Liechtenstein Constitution: According to article 52 of the Constitutional Court Act, a suspensory effect is granted if there are no coercive public interests against it and if the complainant would suffer a disproportionate disadvantage by the execution of the information exchange.

Critical in this procedure is the time factor: in tax information exchange cases, the chairperson of the Constitutional Court can grant the complainant a suspensory effect upon application in a so-called provisional procedure before deciding on the merits, i.e. concerning the forwarding of the tax information in question. However, the chairperson of the Constitutional Court has to decide on this application within 14 days; this period cannot be extended. Without a decision of the chairperson within 14 days, the application is dismissed. There is then no suspensory effect and the tax information must be submitted to the requesting state regardless of the Court's final decision. Furthermore, once granted, the suspensory effect of the appeal expires within 4 weeks (which can only be extended once for a maximum of 14 days). As a result, the maximum duration of the suspensory effect amounts to 8 weeks. If the Constitutional Court has not returned the final verdict within 8 weeks, the tax information will be transferred to the requesting state in any case.

Another point in question was the alleged retroactivity of the tax information exchange. In fact, the TIEA between Liechtenstein and Denmark entered into force on 7 April 2012 and was published in the Liechtenstein Official Gazette on 27 June 2012, and the request by the Danish Tax Administration was made on 23 May 2012, about 4 weeks before the publication of the TIEA. However, the official final notice by the Liechtenstein tax authorities was issued on 1 August 2012. For this reason, an illegal retroactivity could not be found according to the Supreme Administrative Court. In the Court's S. 352opinion, it was crucial that the official notice entered into existence after the publication of the TIEA. The Court pointed out that it would not have made any sense to have the Danish tax administration repeat its request after the publication of the TIEA.

35.3. The Court decision

According to the decision of the Constitutional Court, a certain exchange of tax information upon request by the Danish fiscal administration under the TIEA between Liechtenstein and Denmark that follows article 26 of the OECD Model is in conformity with the European Constitution on Human Rights (ECHR), which is part of the Liechtenstein Constitution. On the merits, the establishment's appeal was declined. The official notice of the Liechtenstein tax administration is in conformity with the Liechtenstein Constitution and was therefore sustained.

However, the Constitutional Court decided that the limitation of 8 weeks for the suspensory effect of the appeal determined by the Liechtenstein legislator according to the Constitutional Court Act is not in line with the Liechtenstein Constitution. The 8-week notice cannot be justified by public interest in favour of a quick and efficient information exchange. Since the revision of the Commentary on Article 26 of the OECD Model in 2012, group requests can be made; therefore, the procedure before the Constitutional Court may take more time than in a single case.

As there is only a time limit for the Constitutional Court procedure, but not for the procedure before the tax administration and the Supreme Administrative Court, this is a breach against the rule of equality. As a consequence, article 52(3) and (4) and article 53(3) of the Constitutional Court Act, which determines the procedure before the Constitutional Court, have been repealed.

However, a retroactive application of the TIEA was denied by the Constitutional Court because it does not make any sense for the Danish fiscal administration to repeat its tax information request. As the notice was issued by the Liechtenstein tax administration after the publication of the TIEA between Liechtenstein and Denmark, an unconstitutional act cannot be found in this respect.

S. 35335.4. Comments on the Court's reasoning

The suspensory effect is a main element in the Liechtenstein tax information exchange procedure and a cornerstone in the protection of taxpayers ' rights. The aim and purpose of the judicial revision of the tax administration's actions could be perverted when sending the tax information before the end of the court procedure. A temporal limitation of the suspensory effect does not make any sense in this respect. Besides, Liechtenstein runs the risk of a government liability if, after sending the tax information, the Constitutional Court subsequently rules the information exchange illegal.

In the field of retroactivity, the decision of the Constitutional Court on the TIEA between Liechtenstein and the United States has to be taken in consideration as well. This TIEA was signed on 11 December 2008 and stipulated a retroactive effect in article 30a of the Liechtenstein Transposition Act allowing group requests concerning tax years beginning after 1 January 2001. This article was judged as not in conformity with the Liechtenstein Constitution by the Constitutional Court. According to this verdict, a retroactive exchange of tax information is only constitutional from the date when the information exchange was announced officially and foreseeable, and therefore the taxpayers could react to this announcement. In the concrete case, the tax information exchange was only permissible from the year 2009 when the TIEA with the United States was already signed and the (First) Liechtenstein Declaration on cooperation in tax matters was published. In spite of the legal basis of the tax information exchange, it is judged as illegal when it concerns past periods and therefore takes the taxpayers by surprise, without having the possibility to respond to the changed legal situation.

35.5. Conclusion

The suspensory effect of appeals is granted upon application by the Constitutional Court if the legal requirements are met. The Constitutional Court also decided that the limitation of 8 weeks for the suspensory effect of the appeal determined by the Constitutional Court Act is not in line with the Liechtenstein Constitution. According to the new legal situation after the decision of the Constitutional Court, the time limit for the decision concerning the suspensory effect of the appeal has been abolished. In addition, there is also no longer any time limit for the effectiveness of the S. 354suspensory effect. If a suspensory effect is granted, it takes effect until the end of the entire procedure. As a consequence, the tax information cannot be submitted to the requesting tax administration of a certain state before the final court decision. It is up to future developments to see if the total duration of the tax information exchange procedure in Liechtenstein will be extended in practice because of these legal changes.

Moreover, Liechtenstein's tax treaty policy is very sceptical towards retroactivity in TIEAs and DTCs: No Liechtenstein TIEA or DTC has stipulated a retroactive effect except the Liechtenstein Transposition Act of the TIEA between Liechtenstein and the United States. The several Liechtenstein TIEAs and DTCs only apply to requests presented to the requested party after the date of entry into force and only for taxable periods beginning on or after the actual signing of the respective TIEA or DTC. In Liechtenstein, the submitting of tax information concerning past periods is even regarded as unconstitutional to a certain extent.