The UK and Germany signed tax deals with Switzerland last year to ensure they will receive tax from any undisclosed assets held by their taxpayers in Swiss banks and financial institu
The UK and Germany signed tax deals with Switzerland last year to ensure they will receive tax from any undisclosed assets held by their taxpayers in Swiss banks and financial institutions. After the European Commission objected that the deals undermined EU law, the UK revised its deal by signing a Protocol of Amendment with Switzerland on 20th March 2012.
Germany has now also signed a Supplementary Protocol to amend its agreement with Switzerland.
As with the UK deal, the original German one included a one-off levy to compensate for past tax evaded on the funds; payment of withholding taxes on future income, and the ability to ask Switzerland for a set number of information requests each year. Both deals are scheduled to come into force on 1st January 2013.
The key revisions to the Swiss-German deal are:
– The retrospective one-off tax has been increased from a 19% to 34% range to between 21% and 41%.
– As with the UK deal, inheritance has been added in. Heirs of disclosed Swiss assets must consent to either a collection of 50% tax or disclosure.
– The number of information requests the German authorities can ask for within a two year period increased from 999 to 1,300.
– From 1st January 2013 German taxpayers will not be able to move assets out of Switzerland to third countries without notification. This deadline was brought forward from 31st May 2013.
– Interest payments covered by the European Savings Tax Directive will continue to be covered by that Directive and so excluded from the bi-lateral Swiss-German pact.
The revised pact was designed to ensure ?tax equity?. Swiss President Eveline Widmer-Schlumpf, stated:
“Our partner countries should take note that we are serious and will implement our announcements concerning a financial centre of integrity, free of undeclared funds. Foreign investors in Switzerland should be taxed at the rates of their country of residence. This will ensure comprehensive taxation of all taxpayers. In this way masses of data which can scarcely be evaluated will not be exchanged but in concrete terms tax revenues will be transferred. This is what we mean by tax equity.?
Consequences for UK deal
The rate range for the one-off retrospective tax agreed under the UK deal was between 19% and 34%, depending on how long the assets have been held and their value. This is the same as the original German-Swiss deal.
However, the UK had a clause in its agreement whereby it could match any rises agreed in the Swiss-German pact. It was therefore expected that the UK tax would probably increase as well, and this has now been confirmed.
Under a revised deal signed on 18th April 2012, the retrospective tax rate for UK taxpayers will be between 21% and 41%.
An HMRC spokesman explained: “The original rates agreed followed very tough negotiations. We still believe those rates were broadly at broadly the right level. But it is fair to all UK taxpayers to make similar amendments in our agreement to the tax rates provided for in the CH/DE (Swiss/German) agreement.“
According to the Financial Times, revenue insiders believe that the Treasury will now receive a significantly higher tax take from the deal thanks to this change, possibly hundreds of millions of pounds more.
German deal still causing debate
The Swiss-German pact still needs to be ratified by each country?s parliament.
There has been resistance to the deal from opposition parties, and although some of the changes in the Supplementary Protocol were included to appease them, the Social Democrats Party (SPD) is not yet satisfied and has stated its intention to stop the deal unless more changes are made.
SPD leader Sigmar Gabriel said the revised agreement is still a ?slap in the face? for all honest taxpayers in Germany and accused Finance Minister Wolfgang Sch?ble of legalising tax evasion.
Gabriel has urged Sch?ble to ensure the provisions of the treaty apply with retroactive effect from September 2011, when the agreement was originally signed. This would prevent money being moved out of Switzerland before it comes into effect.
Commenting on the revised German pact, Swiss President Widmer-Schlumpf said: ?I am confident that this system will bring benefits as soon as it enters into force. I am also confident that other states will recognise this and will arrange agreements with Switzerland.“
Switzerland agreed a similar deal with Austria in mid-April and is in discussions with Greece.
As PKF?s Cassidy said, ?the only sensible reason to use the UK-Swiss deal now is to maintain your anonymity ? but you have to be prepared to pay heavily for that privilege.“
Seek advice from a firm like Blevins Franks to establish which is the most tax effective way to hold your wealth.
By Bill Blevins, Financial Correspondent, Blevins Franks
12th April 2012, updated 19th April 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 must take personalised advice.