UK-Switzerland tax deal is a pragmatic trade-off, says CIOT

‘The world has changed for tax evaders,’ Dave Hartnett, Permanent Secretary for Tax at HMRC, said as HM Treasury announced yesterday’s agreement with Switzerland to address evasion by UK taxpayers.

‘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 UK 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.’

Hartnett added: ‘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.’

‘The net is tightening’

The Chartered Institute of Taxation described the deal as a ‘pragmatic trade-off’. Gary Ashford, CIOT representative on HMRC’s compliance reform forum, said: ‘Rightly, the net is tightening on those who think they can keep money in offshore bank accounts out of sight of the taxman.’

Innocent taxpayers who have reported their Swiss income will need to make a further disclosure to avoid the one-off deduction from their account balance in 2013, he added.

‘The rate of withholding tax being charged is high. There is clearly a risk that account holders will move their money to even more distant and inaccessible locations, which is in neither government’s interests. Swiss banks and HMRC alike will be hoping this has all been pitched at the right level.’

Balance

Grant Thornton said the Swiss deal ‘has taken the shine off supposed safe tax havens’. Paul Roberts, the firm’s Head of Tax Investigations, said Swiss authorities have ‘tried to balance the promise of continued banking secrecy for investors with limited disclosure of tax evasion to other nations’ fiscal authorities’.

Liechtenstein Disclosure Facility

The CIOT pointed out that HMRC’s Liechtenstein Disclosure Facility is still available to Britons with offshore accounts. ‘Uncertainty over the Swiss deal, and whether it might include a generous disclosure facility, has led to delays in the Liechtenstein process, as account holders waited to see whether the Swiss deal offered an alternative,’ Ashford said.

The LDF is ‘a better deal for UK taxpayers [with assets held in Swiss banks] coming clean than the UK/Swiss treaty is likely to be’, according to PwC, although taxpayers have to give up secrecy under LDF.

A random sample of PwC clients who have used the LDF shows that ‘total liabilities under LDF are, on average, around 10% of overseas account balances in 2009/10’, said Stephen Camm, Tax Partner at PwC. ‘Those with assets in Switzerland will find their assets taxed at either 19% or 34% depending on how long the bank account has been in operation.’

‘Get help to come clean now’

John Cassidy
Tax investigations and dispute resolution partner, PKF

This is the end game for tax evasion via Swiss accounts. Accountholders have three options:

• Do nothing, lose a third of your money and still risk investigation.
• Come clean using the Liechtenstein Disclosure Facility – often this will cost less than the 34% Swiss charge.
• Move to another tax haven – not a smart move as the Swiss bank will tell HMRC about such movements. This guarantees you will be investigated and face tax penalties of up to 200% or, in the worst cases, be arrested and go to jail.

Unless you are prepared to flee the country, anyone who has used a Swiss account to avoid UK tax should get help to come clean now.

Back to top