UK and Swiss Governments today initialled an significant new agreement to tackle offshore tax evasion. The agreement will resolve the long-standing issues over the use of Swiss banking secrecy by those who seek to conceal the proceeds of tax evasion and is expected to secure billions of pounds of unpaid tax for the UK exchequer from 2013.
The agreement is expected to be formally signed in the coming months. It will then go through Parliamentary and administrative procedures in both countries before being signed later in the year. The full text will be published at the time of signature.
Under the terms of the agreement, existing funds held by UK taxpayers in Switzerland will be subject to a significant one-off deduction of between 19% and 34% to settle past tax liabilities, leaving those who have already paid their taxes unaffected. As a gesture of good faith Switzerland’s banks have also agreed to pay the UK an initial up-front payment of SFr500m ($630m) in May 2013, with the amount to be deducted from future tax payments. This compares with the SFr2bn down-payment Swiss banks agreed to pay the German government, which bankers said reflected the disparate sizes of Switzerland’s UK and German deposit bases.
Accounts held by individual UK taxpayers in Switzerland will be subject to a one-off deduction in 2013, as long as the account was open on 31 December 2010 and is open on 31 May 2013. This deduction will settle income tax, capital gains tax, inheritance tax and VAT liabilities in relation to the funds in the account. The deduction will not be applied if the account holder instructs the bank to disclose details of the account to HMRC. Following that disclosure, HMRC will seek unpaid taxes with relevant interest and penalties.
While the one-off levy on past holdings is identical to the one contained in the earlier Swiss-German agreement, the tax rate on UK residents’ future income is nearly double the amount paid by German account holders. This gives UK account holders a bigger incentive than their German counterparts to shift funds out of Switzerland before the agreement takes effect in early 2013.
From 2013, a new withholding tax of 48% on investment income and 27% on gains will ensure the effective future taxation of UK residents with funds in Swiss bank accounts. The rates of this withholding tax are close to the top rates of UK tax.
Payment of the withholding tax will satisfy UK tax liabilities on the income and gains. Again, the withholding tax will not apply if the account holder authorises disclosure of details of income and gains to HMRC and pays any associated taxes here.
This will be accompanied by a new information sharing provision which will make it easier for HM Revenue and Customs to find out about Swiss accounts held by UK taxpayers. The new charges will not apply if the taxpayer authorises a full disclosure of their affairs to HMRC.
UK taxpayers with Swiss accounts will be contacted by their Swiss financial institution in due course.
The agreement with Switzerland is the latest step in HMRC’s crackdown on offshore tax evasion, which includes the agreement of the Liechtenstein Disclosure Facility, the creation of a new dedicated team of investigators to catch those hiding money offshore and ongoing work to put in place information sharing arrangements with other countries.
The Lichtenstein Disclosure Facility (LDF) is unaffected by this proposed agreement.
George Osborne, Chancellor of the Exchequer, said:
"Tax evasion is wrong at the best of times, but in economic circumstances like this it means that hard-pressed law-abiding taxpayers are forced to pay even more. That is why this Coalition Government made it a priority to go after those who don't pay their fair share. We will be as tough on the richest who evade tax as on those who cheat on benefits. The days when it was easy to stash the profits of tax evasion in Switzerland are over.”
24.08.2011