Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Swiss tax deal: the technical ramifications

by
12th Oct 2011
Save content
Have you found this content useful? Use the button above to save it to your profile.

The UK and Switzerland governments have signed a controversial agreement to tax money held by British citizens in secret Swiss bank accounts. Nick Huber reports.

The agreement with the world’s best known tax haven, signed last week, has been broadly welcomed by tax experts, with one describing it as a “new chapter” in the clampdown on international tax evasion. But critics have said the deal is too soft on tax dodgers.

The main questions for tax advisers is whether to advise their clients to come clean about tax owed by using the Liechtenstein Disclosure Facility, which will run until March 2015.

The Treasury did not disclose how much it hopes to raise through the Swiss tax deal but last month a source familiar with the agreement told AccountingWEB that it could raise more than £5bn a year for the UK government.

Under the Swiss-UK tax deal, which is expected to start in 2013, the Swiss will tax the bank accounts of UK citizens and transfer the money directly to the Treasury, but without revealing the identity of account holders.

Dave Hartnett, permanent secretary for tax, who last month defended the Swiss tax deal when questioned by the House of Commons Treasury sub-committee, told the CIOT that the UK and Swiss governments had agreed a ‘ratchet’ deal. The more successful HMRC is in identifying people who owe tax on their Swiss accounts, the more people the taxman will be able to search for in future, he said.

An extension to the “double taxation” agreement between the UK and Switzerland, made at the beginning of this year, allows the UK taxman to more easily information on Swiss bank accounts held by British citizens, Hartnett told the CIOT in an interview published on its website.

Deal reaction

Gary Ashford, who represents the CIOT on the “compliance reform forum” said the Swiss deal opened a “new chapter” in tackling international tax evasion and would still allow HMRC to prosecute people in serious cases.

Phil Berwick, director at law firm McGrigors, said many British citizens with Swiss bank accounts who owe tax would be better off using the Liechtenstein Facility than waiting.

Advantages to making disclosures under the LDF rather than the UK-Swiss tax agreement, according to Berwick, include:

  • The LDF gives immunity from prosecution for tax offences - the Swiss tax agreement doesn’t
  • The Swiss tax deal only covers funds held in Swiss bank accounts – the LDF covers all an individual’s worldwide assets
  • HMRC may seek to prosecute those taxpayers using the Swiss tax treaty who failed to make a full disclosure under a previous disclosure process. People can use the LDF without fear of prosecution
  • The LDF offers finality on a taxpayer’s affairs, and is available now - the Swiss agreement doesn’t come into force until 2013

Critics of the UK-Swiss tax deal have said it is too soft on tax evaders and undermines efforts towards tax transparency in Europe.

Nicholas Shaxson author of Treasure Islands: Tax Havens and the Men Who Stole the World, said the UK-Swiss -Swiss deal was “sordid” and “cannot work” in a Guardian article.

AccountingWEB subscribers who commented on the deal were also sceptical about how effective the deal will be.

Mike Down, head of Baker Tilly’s tax risk and investigation management practice, said that HMRC may be being “unrealistic” in trying to raise £7bn under the Swiss tax deal. He based this figure on a claim by HMRC that 80% of UK residents with a Swiss investment are not paying all their taxes.  

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.