Liechtenstein is reportedly close to concluding the terms of a tax treaty with its close fellow Germanic neighbour Austria.

During a meeting in Vienna recently negotiations as regards the key terms of a proposed bilateral double taxation and withholding tax agreement took place during discussions between Liechtenstein’s Prime Minister Klaus Tschütscher and the Austrian Finance Minister Maria Fekter.

The deal is said to closely resemble an agreement concluded between Austria and Switzerland in early 2012, in that it will provide for an annual withholding tax to be levied by Liechtenstein authorities on assets held by Austrian residents in Liechtenstein banks.

Unlike the agreement reached with Switzerland however, the treaty being negotiated with Liechtenstein is anticipated to cover undeclared assets held both in foundations and trusts domiciled in Liechtenstein.

Such a deal is an interesting tactical move by Liechtenstein in that it will preserve ownership secrecy for Austrian residents banking in the Principality whilst at the same time avoiding conflict with EU laws designed to minimise cross border tax avoidance as between member states.

Traditionally a number of wealthy Austrian citizens have chosen to bank and receive profits in the more tax friendly and privacy respective environment offered by Liechtenstein.  Whether that trend continues or whether savvy Austrian investors will look further abroad for tax saving opportunities in the future remains to be seen.