Swiss Parliament accepts EU Savings Tax Directive.
Over December 8 and 9, the House of Representatives in the Swiss Parliament voted through eight bilateral accords with the EU. This included the withholding tax provisions of the Savings Tax Directive, which was overwhelmingly backed by 146 votes to 11. These accords bring Switzerland much closer to the EU and the withholding tax vote should mark the final nail in the coffin for anyone hoping that Switzerland may delay the Directive further.
Urs Roth, CEO of the Swiss Bankers’ Association, has also said that a referendum is highly unlikely as not one political party or industry body has requested one. “We should be able to implement the Directive by July 1, 2005.”
Under the tax agreement, Switzerland will progressively introduce a withholding tax of 35 per cent on the savings income of EU residents. The EU has also announced the signature of agreements concerning the taxation of savings with Andorra, Liechtenstein, San Marino and Monaco. These agreements form part of a framework for co-operation in the field of direct taxation that includes the Savings Tax Directive and legislation with several third world countries and dependent territories of Member States.
Crown dependencies sign withholding agreement.
Jersey, Guernsey and the Isle of Man have now signed their withholding tax agreements to the Savings Tax Directive. Like Switzerland, they chose the tax route. Luxembourg, Austria and Belgium will also do the same.
Under the terms of the Directive, all other EU Member States will automatically exchange information on EU residents’ tax and interest earnings affairs when the Directive starts on July 1, 2005. The withholding tax option is for an initial period only – the ultimate aim of the Directive is for all States and participating jurisdictions to exchange information in the future.
Banks in those jurisdictions granted the withholding tax concession will offer their clients a choice of either withholding tax or exchange of information.
UK tax authorities to be given stronger investigative powers.
Following on from the UK Chancellor’s pre-budget report (which included a fresh crackdown on tax avoidance), it now appears that the UK tax authorities could be given stronger investigative powers.
The Inland Revenue and Customs and Excise are to be merged into a new ‘super department’, to be known as HM Revenue and Customs (HMRC). A review to possibly bolster its powers is due to start within weeks.
According to paymaster general, Dawn Primarolo, some accountants and lawyers have said that tax inspectors need tougher powers. She claimed that the ministers wanted a debate about “appropriate powers” rather than stronger ones, but said that “there are some people outside of government, in the very professions we are talking about – legal, tax advice, accountancy – that believe that our powers should be stronger”.
The government is anxious to narrow the shortfall between the amount of tax they are entitled to and what is actually paid, so it is highly unlikely that they will downgrade any investigative powers – they will do all they can to collect as much tax as possible. There is plenty of evidence for this – the recent crackdown on corporate tax avoidance schemes, the Special Compliance and Expatriates Office (the tax department’s crack investigation unit), and the Revenue’s Financial Institutions Project Group. The UK has also established a joint tax force with the US, Australia and Canada to increase collaboration and share information on tax dodgers and the professional advisers helping them.
The Law Society and accountancy bodies are alarmed at the prospect of the Inland Revenue gaining extra powers after its merger with Customs and Excise, which enjoys extensive powers of investigation and entry. The Association of Chartered Accountants complained that “taxpayers do not want the draconian powers of Customs and Excise, which are stronger than the police in some cases, to prevail.” The Law Society agrees: “Any alignment of powers should not result in an automatic levelling up.”
UK taxes may have to rise.
Another report on the UK pensions crisis has been published, which again concludes that tax rises are a distinct possibility. This latest warning comes from the government appointed Employers Task Force, chaired by former Sainsbury’s boss, Sir Peter Davis. According to the report, taxpayers will face higher taxes and could be forced to pay into pension schemes under drastic measures, unless the savings crisis is tackled.
Over the last couple of months, various analysts have concluded that taxes will need to rise, possibly next year, to tackle the pensions crisis and the UK deficit and spending plans. Gordon Brown himself, although insisting that the government’s spending plans are fully affordable without tax hikes, has declined to actually rule out tax rises, following the General Election.
On the other hand, shadow Chancellor, Oliver Letwin, has said that a Conservative government would ease the tax burden for low and middle income earners. He told the Telegraph that “we will make commitments about tax before the next elections” and that “I will resign if we do not do them”.
Letwin has also earmarked inheritance tax and stamp duty as high Tory priorities, although he remained vague on any specific plans.
2005 is going to be an interesting year…
