By BILL BLEVINS [email protected]
Bill Blevins is the Managing Director of Blevins Franks. He has specialised in expatriate investment and tax planning for over 35 years. He has written books and gives lectures on this subject in Southern Europe and the UK.
Tax evasion stories concerning bank accounts in Switzerland are coming at a fast rate. It seems that no sooner does one story break then another hits the headlines – a rather clear sign that hiding money in Switzerland is an increasingly risky pursuit.
Now the UK government has brokered a deal to start negotiations with the Swiss authorities to tax all UK residents holding Swiss bank accounts. Germany is in similar discussions and other European countries could follow suit.
This may be a good time to review your savings to ascertain if you can use legitimate arrangements in Portugal to lower your tax obligations.
It is believed that between £100 billion and £125 billion could be concealed in Swiss bank accounts by more than 15,000 UK taxpayers and the UK Treasury is hoping to raise many billions of pounds from this latest tax crackdown.
Swiss Finance Minister Hans-Rudolf Merz and British Chancellor George Osborne agreed to begin negotiations and a declaration was signed on October 25.
Talks will start in earnest in early 2011 on the precise terms of the agreement which is due to be finalised by the end of the year. A few days later, Switzerland struck a similar accord with Germany.
Under the UK agreement, Swiss banks will tax at source the interest they pay to British clients and the revenue will be passed on to the UK Exchequer.
Details of this withholding tax will be negotiated next year. Some commentators feel that the rate should be set at 50 per cent since account holders are likely to be high rate UK taxpayers.
Swiss Finance Minister Hans-Rudolf Merz told reporters that the withholding tax rate would vary from country to country and be similar to the rates set in the depositor’s home country. Merz added that there would also be some form of extra levy on holdings which have been held for many years without being taxed, so that they can be “regularised”.
As part of the regularisation process, the discussions will also tackle the possibility of a tax or penalty on “inherited accounts” – bank accounts which have been inherited by the present owners but which were never declared for tax purposes.
It is thought that the UK wants to push for the withholding tax to be enforced retrospectively and for more information to be provided on bank accounts held by UK taxpayers. However, the Swiss government said the withholding tax will not be retroactive and any information exchange would apply after the agreement enters into force.
There are questions on how a withholding tax would sit alongside the existing European Savings Tax Directive (STD). Its withholding tax rate is currently 20 per cent but rises to 35 per cent from July 1, 2011.
A withholding tax between Switzerland and the UK would have to be broader in scope. Swiss banks have proposed a withholding tax on the interest, dividends, capital gains and investment income earned by foreign citizens with offshore accounts.
The withholding tax under the STD applies to interest earned by an individual on bank accounts, bonds and income from bond funds, money-market funds, loans and mortgages.
This agreement sees the UK compromise on automatic exchange of information in return for a final agreement in which it hopes to see the regularisation of bank accounts; taxation of the interest earnings and improved market access for Swiss banks.
But for how much longer can Switzerland maintain secrecy laws following the world’s pursuit of offshore tax evasion?
As part of the new agreement, the Swiss government has agreed to provide “extended administrative assistance” to prevent anyone circumventing the withholding tax and to enable the UK authorities to submit a request for assistance by only providing the client’s name – the Swiss authorities will then trace the account and provide details.
While Switzerland insists that the ‘fishing expeditions’ will not be allowed and requests should be “limited” and “well founded”, the agreement goes further than the OECD information exchange protocol which requires any request to include the name of the bank.
Holding bank accounts in Switzerland is not illegal but failing to disclose them and pay tax on the interest earned is. Switzerland’s banking secrecy laws have attracted wealthy clients in the past but in March 2009 the Swiss government agreed to relax its strict confidentially rules to avoid being blacklisted as a tax haven by the OECD.
Since then, Switzerland has negotiated nearly 30 Tax Information Agreements,
Following the agreements with the UK and Germany, the Chairman of the Swiss Bankers Association, Patrick Odier, said they may set a precedent: “It may very well be the case that some other countries may be interested and attracted to what now seems to be an agreeable solution for at least two major countries in Europe.”
Once the negotiations are concluded we will find out how this new withholding tax fits in with that applied under the STD – presumably (hopefully!) tax will not be deducted twice, though the new tax could well be higher than that applied under the STD.
Tax planning is becoming an ever increasing minefield, but you can remove the worry and the risks through the use of available legitimate vehicles which can help residents of Portugal to mitigate their worldwide tax liabilities.
Consult an international tax and wealth management professional like Blevins Franks for advice on the structures most suited to your personal circumstances.
To keep in touch with the latest developments in the offshore world, check out the latest news on the Blevins Franks website by clicking the link on the right of this page.