Tax revenues start to flow from Switzerland to UK

news: Tax revenues start to flow from Switzerland to UK

By Bill Blevins

The new tax agreement between the UK and Switzerland is already reaping dividends for the Treasury. Within a month of it coming into force, HM Revenue & Customs has recouped £342 million in unpaid tax from Swiss banks.

The tax accord started on 1st January this year. It enables the British authorities to tax the income on assets held in Swiss financial institutions by UK taxpayers, even if the income is not declared.

HM Revenue & Customs (HMRC) announced the payment in a statement on 29th January. Chancellor George Osborne told the Commons that it was “the first time in our history that money due in taxes has flowed from Switzerland to the UK instead of the other way round”.

This £342 million (500 million Swiss Francs) is just the first tranche of revenue. The Treasury calculates the deal will deliver around £5 billion of previously unpaid tax by 2018. £3.1 billion is expected in the 2013-14 tax year.

Switzerland has a similar arrangement with Austria. In a statement on 31st December 2012 confirming the withholding tax agreements would enter into force the following day, the Swiss Federal Government commented that all British and Austrian taxpayers with a bank account or securities deposit in Switzerland are affected. It added: “The agreements solve the problem of untaxed funds”.

It also confirmed that similar agreements are under way with Greece and Italy, and that other countries “both within and outside Europe” have shown an interest. It is quite possible that Spain/France/Portugal/Cyprus/Malta will enter into a deal with Switzerland at some point in the future.

Using Swiss banking secrecy to hide income and assets from the taxman is likely to have costly consequences one day. There are legitimate tax planning arrangements available here in Spain/France/Portugal/Cyprus/Malta and you should seek advice from an experienced tax planning advisory firm like Blevins Franks on the best way to lower your tax liabilities.

The UK-Swiss tax accord has four main components.

1) One-off levy. This retrospective tax of between 21% and 41% will be deducted on 31st May 2013, unless the account holder authorises his bank to disclose information to HMRC. The exact rate will depend on the type of asset, how long the account has been open and the amount of capital. This will cover past unpaid tax. If funds are moved out of Switzerland before 31st May, the levy will be applied immediately.

2) Future withholding tax. This will be 48% on interest, 40% on dividends and 27% on capital gains, to be applied on all income, again unless the owner authorises disclosure.

3) Inheritance tax. When the holder of an undisclosed Swiss bank account dies, 40% will be deducted and paid to the UK Treasury.

4) Information requests. A set number can be submitted to the Swiss authorities each year and Swiss banks will be obliged to respond.

Under the first three components, where the taxes are deducted at source the identities of the account owners remain anonymous and are not disclosed to the HMRC. This does not necessarily mean, however, that they cannot be investigated or prosecuted.

The Treasury has described the information-sharing arrangement as “a powerful new provision”. It goes further than the existing double tax treaty and enables HMRC to submit up to 500 information exchange requests to the Swiss authorities each year. Swiss banks will have to respond, regardless of whether the individual consents or not. HMRC will only need name the suspected tax evader, it does not have to name their bank.

Quoted in HMRC’s statement of January 29, David Gauke, exchequer secretary, said: “Offshore evasion costs the UK billions of pounds every year and we are determined to tackle it. One of the ways is through information exchange, and this agreement makes it easier for HMRC to obtain information about UK taxpayers suspected of hiding money in Switzerland.”

HMRC has warned that anyone who may have unpaid tax relating to Swiss assets should consider making a direct voluntary disclosure. This would bring their tax affairs up to date and provide certainty that they are in order. They may be able to use the Liechtenstein Disclosure Facility if entry conditions are satisfied.

This so called “Rubik” withholding tax concept was initially formulated by the Association of Foreign Banks in Switzerland to protect Swiss banking secrecy against international moves towards automatic exchange of information.

These agreements are seen as an attractive alternative by EU States with banking confidentiality, and may become a template for the future as a pragmatic way for governments to effectively collect tax. Austria has just agreed a tax package with Liechtenstein along the same lines as the one it has with Switzerland.

The Swiss-UK tax deal was seen as a landmark agreement, and is a reminder how things can change. A few years ago this would not have been considered possible, and Swiss banking secrecy seemed set in stone.

For advice on effective and compliant tax planning in today’s world, speak to an established firm like Blevins Franks which specialises in bespoke tax planning for British expatriates. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.

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Bill Blevins is Financial Correspondent 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

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