The last potential obstacle to the tax deal between Switzerland and the UK has been removed. The landmark agreement does not need to be approved by referendum in Switzerland and will therefore start on 1st January 2013 as planned.
Switzerland has signed similar agreements with Germany and Austria, and deals with Italy and Greece are under consideration. Cyprus is the latest country to say it wants to strike a deal. It may only be a matter of time before other European countries consider this option for collecting unpaid tax.
The agreements aim to resolve the long-standing issue of undisclosed Swiss bank accounts by taxing undeclared income and assets held in Switzerland by foreign account holders. They fulfil two seemingly paradoxical objectives: Switzerland gets to retain banking secrecy as the tax is paid anonymously, while the other country receives the tax due to it, both past unpaid tax and tax on future earnings.
All this confirms that there is no legitimate tax planning benefit to holding assets in a Swiss bank account. Governments the world over are determined to prevent tax evasion and any attempts to hide bank accounts and investments away from the taxman will fail in the long run and could have costly repercussions. You should only ever use tax planning arrangements which are compliant in your country of residence.
While some critics object to the fact that under these Swiss deals tax evaders would remain anonymous, many tax authorities, like the UK’s HM Revenue & Customs, view the deals as a “pragmatic solution to a seemingly intractable problem”.
These tax treaties are quite revolutionary and illustrate how offshore financial centres are adapting to international pressure and how much international tax planning has changed. It has become more important to seek professional advice on your tax planning, particularly if you have assets in more than one country. A firm like Blevins Franks can guide you though tax planning here in Spain, France, Portugal, Cyprus and Malta, as well as in the UK .
The concept of these tax deals was formulated by the Association of Foreign Banks in Switzerland to protect Swiss banking secrecy against international moves while providing other countries with the tax due to them.
There has been some opposition to the treaties in Switzerland. Opponents attempted to derail them by forcing the government to hold a referendum. They gathered signatures but failed to submit the required 50,000 before the deadline expired. There will therefore be no referendum and as far as Switzerland is concerned the deals can go ahead since they were approved by parliament in June.
The UK and Austria have already ratified the deal at their end, which means the agreements can come into effect on 1st January 2013. The German deal is going through parliament.
The main components of the treaties are:
1) A retrospective one-off levy to be applied immediately, to cover past unpaid tax. For UK taxpayers this will be between 21% and 41% of the value of the assets, depending on the type of asset, how long the account has been open and the amount of capital. Bankable assets include currency, precious metals, shares, bonds and structured products.
2) A withholding tax to be applied on all future income. For UK tax residents, interest will be taxed at 48%; dividends at 40% and capital gains at 27%.
3)I nheritance 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.
The withholding taxes will not be applied if the owner authorises his bank to disclose the assets to the tax authority in his country of residence.
Now Singapore agrees exchange of information deal with Germany
There are concerns that people who are hiding money in jurisdictions like Switzerland will now simply move the capital outside Europe instead.
They cannot escape the taxman forever though, as jurisdictions across the world are under pressure to conform to international standards of tax transparency.
Singapore, for example, wants to protect its reputation as a financial centre and is complying with global standards. It is taking steps to prevent foreigners moving funds there just to evade tax in their own country.
In October it announced plans to penalise banks which facilitate tax evasion, with the Monetary Authority of Singapore stating: “Singapore is fully committed to safeguard its financial system from being used to harbour proceeds from tax crimes.”
It has now agreed a deal with Germany to increase the amount of information it exchanges in order to prevent German taxpayers hiding money in Singapore.
The new tax information exchange agreement, once ratified, will cover all types of tax rather than being restricted to tax on income and capital. Information exchange will no longer be dependant on the taxpayer being resident in either country. Banking secrecy “will not constitute an obstacle to exchanging information”.
For advice on the most effective structures and locations for your capital, and on legitimate tax planning opportunities in your country of residence or the UK, speak to an established tax and estate planning advisory firm like Blevins Franks.
16th October 2012
The tax rates, scope and reliefs may change. 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.