In its latest crackdown on offshore tax evasion, HMRC has signed an agreement with Switzerland that is expected to secure billions of pounds of unpaid tax for the UK exchequer from 2013.
Under the terms of the agreement, existing funds held by UK taxpayers in Switzerland will be subject to a significant one-off deduction of between 19% and 34% to settle past tax liabilities, leaving those who have already paid their taxes unaffected. As a gesture of good faith Swiss banks will make an up-front payment from Switzerland to Britain of CHF 500m.
From 2013, a new withholding tax of 48% on investment income and 27% on gains will ensure the effective future taxation of UK residents with funds in Swiss bank accounts. This will be accompanied by a new information sharing provision which will make it easier for HM Revenue and Customs to find out about Swiss accounts held by UK taxpayers. The new charges will not apply if the taxpayer authorises a full disclosure of their affairs to HMRC.
Commenting on the agreement, Paul Harrison, Tax Partner and Head of Tax investigations at KPMG in the UK said: “This is a very significant move and follows a similar deal announced between Switzerland and Germany recently. It is yet more evidence of a new era of co-operation between tax authorities. At a time when public finances are under great pressure, HMRC are determined to collect the billions they believe is owed to them from hidden Swiss assets. It seems there is a stark choice for those who have abused Swiss banking secrecy – come forward and disclose, or run the risk of losing over a third of your historic Swiss assets.
“The watchwords on this deal are fairness and pragmatism: fraudulent tax evasion needs to be stamped out because it’s not fair on everyone else. And it’s important that people who have deliberately underpaid their taxes are not seen to be benefitting from their wrongdoings. But the authorities need to take care that the innocent and the confused do not get caught up in this. There will be people who simply don’t know whether they have a problem and they will need help to sort their affairs out. In order for this deal to work, the banks, the tax authorities and tax advisors are all likely to have a role,” said Harrison.
While the UK / Swiss deal announced is a one-off opportunity to clear historic tax issues, it’s not the only route to come clean, according to Harrison. “There is also the ‘Liechtenstein disclosure facility’ which may, under some circumstances, be more appropriate for some people. Those affected will need to review their affairs carefully to decide how to proceed,” he said.
The agreement is expected to be formally signed in the coming months. It will then go through Parliamentary and administrative procedures before being signed later in the year.
Accounts held by individual UK taxpayers in Switzerland will be subject to a one-off deduction in 2013, as long as the account was open on 31 December 2010 and is open on 31 May 2013. This deduction will settle income tax, capital gains tax, inheritance tax and VAT liabilities in relation to the funds in the account. The deduction will not be applied if the account holder instructs the bank to disclose details of the account to HMRC.
Following that disclosure, HMRC will seek unpaid taxes with relevant interest and penalties.??From 2013, income and gains arising on investments held by individual UK taxpayers in Swiss banks will be subject to a new withholding tax. The rates of this withholding tax will be very close to the top rates of UK tax. Payment of the withholding tax will satisfy UK tax liabilities on the income and gains. Again, the withholding tax will not apply if the account holder authorises disclosure of details of income and gains to HMRC and pays any associated taxes here.