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  1. Wealth
August 25, 2011

UK-Swiss secret deposit tax agreed

By Spear's

Britain and Switzerland have signed an agreement in principle to levy a one-off tax on deposits held by Britons at Swiss banks and to establish a permanent withholding tax

by Josh Spero

BRITAIN AND SWITZERLAND have signed an agreement in principle to levy a one-off tax on deposits held by Britons at Swiss banks and to establish a permanent withholding tax. Switzerland will make a good will payment straight away of CHF500 million (£385 million). Full agreement will depend on ratification by both parliaments.

The one-off tax will be between 19 and 34 per cent depending on how long the deposits have been held, while from 2013 the withholding tax on investment income will be 48 per cent and 27 per cent on gains, near the highest rate of British income tax and capital gains tax respectively.

Martyn Gowar, one of Spear’s top five tax and trust solicitors, said that the new agreement will encourage compliance and prevent undisclosed funds fleeing: “They’re trying to get a handle on everybody who’s not compliant. If you’re not, where do you go? The Swiss will be telling the UK if they move an account out to Singapore, say. There’s nowhere to hide. Banking secrecy doesn’t exist for the future.”
 
 
THE AGREEMENT WILL bring in billions over a period of years according to David Gauke, Exchequer secretary to the Treasury on the Today programme, but may require more tax to be paid than the Liechtenstein Disclosure Facility, which can be used to bring onshore assets from any country, not just Liechtenstein.

Law firm Collyer Bristow supports this view: “Under the LDF, the taxpayer is assured of immunity from criminal liability. Penalties are charged at 10% rather than 100% of tax due (set to rise to 200% from 6 April 2012). Tax liabilities which are more than ten years old are entirely forgiven. The LDF is in principle available to all types of taxpayers (individuals, companies and trustees) and applies to all types of UK tax (from income tax to VAT).

“If HM Revenue & Customs further escalates their campaign against tax evasion in the wake of any deal then the LDF will be the obvious avenue to take. This assumes that it will still be available to those with assets in Switzerland in the wake of any deal.

Mark Summers at Speechly Bircham agreed that the deal could be aimed at driving people to the LDF: “In our experience, most disclosures made under the Liechtenstein Disclosure Facility result in many only losing 5 per cent or less of undisclosed funds and most losing less than 10%, so going forward, many will favour this route over the Swiss withholding payment in order to clean up their tax affairs where they wish to be disclosed.” He also noted that UK non-doms will be exempt.

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Martyn Gowar said that the reason for choosing this type of agreement rather than another LDF was because the Swiss were more concerned with keeping the money in Switzerland, whereas Liechtenstein wanted to build up its financial services by attracting more money there. He added that there was a danger that those who had already declared might be forced to declare again or face a penalty come 2013.
 
 
IN THE Treasury press release, 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.”

David Gauke said: “I am delighted that, through our constructive discussions with the Swiss Government, we have secured the best possible deal for UK taxpayers. This historic agreement will enable us to collect billions of pounds from those who have for too long evaded their responsibility to pay UK tax by abusing Swiss banking secrecy. The message is clear: there is no hiding place for tax cheats.”

Dave Hartnett, Permanent Secretary for Tax at HMRC, said: “The world has changed for tax evaders. A few years ago, nobody would have anticipated that we would conclude an agreement with Switzerland to tackle tax evasion. However, with the clear wish of Switzerland as well as the United Kingdom to ensure that tax is paid as it should be, we are embarking on a new course which preserves important principles for each jurisdiction, and will be fair for all UK taxpayers. Our strategy is working.

“We will secure significant sums of tax that some had thought we would never see. Not only does this agreement settle past liabilities and make arrangements to secure correct taxation in the future, it also gives HMRC more scope to find out about Swiss accounts.”
 
 
THIS DEVELOPMENT WAS predicted in Spear’s in April 2011. Charles Gothard and Sangna Chauhan wrote: “Perhaps it’s therefore no surprise that the UK and Swiss governments are negotiating a new tax deal. Initial indications are that UK holders of undeclared Swiss accounts will suffer ongoing withholding tax and there is speculation about a one-off penalty payment on the capital value, but the rates of tax remain unknown.”

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