A new landmark tax agreement between Switzerland and the UK has been generating much activity this year. UK taxpayers had to choose between disclosure and steep withholding taxes, and the UK authorities are now following this up.
A new landmark tax agreement between Switzerland and the UK has been generating much activity this year. UK taxpayers had to choose between disclosure and steep withholding taxes, and the UK authorities are now following this up.
The UK/Swiss Agreement on Tax Cooperation came into force on 1st January 2013, to persuade UK taxpayers to regularise their Swiss assets. One way or another all Swiss account holders will now pay tax to HM Treasury.
HM Revenue & Customs (HMRC) has been contacting everyone who took the disclosure option. The letter comes across as quite threatening, with phrases like “detailed investigation into your tax affairs” and “criminal investigations”.
Austria has a similar agreement with Switzerland and other countries are in discussion. It may only be a matter of time before this process is rolled out across other parts of the EU. There is also a trend towards greater sharing of information between governments.
The message is simple. Where necessary, everyone should regularise theirs affairs as soon as possible and only use legitimate – but effective – tax planning arrangements going forward.
The Swiss-UK agreement has four main elements:
- A one-off heavy levy to cover previously unpaid tax.
- A withholding tax on all future income, at rates comparable to the top UK tax rates.
- 40% inheritance tax when the holder of an undisclosed account dies.
- HRMC can submit a number of information requests which Swiss banks have to respond to.
If the owner authorises disclosure of their income and gains to HMRC, the withholding taxes are not deducted. However if they then fail to fully disclose, penalties up to 150% may be imposed.
Swiss banks were required to write to UK clients giving them the choice of paying the withholding taxes or disclosure. For those who did not respond, the default treatment is the withholding tax option.
Switzerland commenced disclosing information from 31st July. On 20th September HMRC’s Specialist Investigations Offshore Coordination Unit began sending letters to individuals who opted for disclosure. It seems that even people who have always correctly declared their Swiss assets and income have received letters.
Recipients had to submit one of three attached certificates by 1st November.
Certificate A – To confirm they have no outstanding UK tax liabilities in respect of their all their offshore assets (not just in Switzerland) or the source of the capital used to fund these assets. HMRC will check all responses against its records.Certificate B – To declare that they have made/intend to make a full disclosure of all UK tax irregularities under the Liechtenstein Disclosure Facility (LDF).
Certificate C – To declare that they intend to make a disclosure of all UK tax irregularities, though means other than the LDF.
The LDF allows Britons to settle their tax liabilities on favourable terms. It is available until April 2016.
The letter warned that if anyone did not respond, HMRC “will take it to mean that you have made a conscious decision not to tell us”. It is then likely to “start a detailed investigation into your tax affairs, supported by our statutory information powers. In some cases, this could be a criminal investigation”.
Likewise false or incomplete disclosures is an offence which may be subject to criminal investigation with view to prosecution.
So far, HMRC has recovered £782 million of unpaid taxes from the withholding taxes. This is less than expected. Some accounts are held by non-domiciles, but also many people have chosen to voluntarily disclose assets instead. So as affairs are regularised, the Treasury will receive more tax revenue from the agreement.
There will be people who took the risk of moving money out of Switzerland. HMRC will receive a list of the top 10 jurisdictions and is expected to seek to reach agreements with them.
Less and less jurisdictions are willing to take non-compliant money these days. Frank Stachan, an expert on disclosure regimes at law firm Edwin Coe, told International Adviser:
“HMRC are not in any particular rush. If people don't wish to disclose now, HMRC will wait until they have nowhere left to run – it will be then that HMRC's real claws will come out.”
These agreements could be the way forward for countries to collect unpaid tax from Switzerland, and to look into past tax affairs.
There is now unprecedented global support for automatic exchange of information. The Swiss government has said it is ready to renegotiate the Savings Tax Directive with the EU and cooperate with foreign authorities on tax matters. Nonetheless tax accords like the Swiss-UK one provide a more immediate means to collect unpaid tax in the meantime, something all governments desperately need.
Anyone with Swiss assets, wherever they live, needs to check that they are tax compliant now, and take action to regularise their affairs if necessary. There are effective legitimate arrangements to lower your tax liabilities.
6 November 2013
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.
