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UK, Swiss Sign Tax Disclosure Pact

Tom Burroughes

7 October 2011

Officials from the UK and Swiss governments signed a disclosure agreement yesterday, following the initial announcement in August this year that a deal had been made. 

The agreement means holders of offshore accounts in the Alpine state will pay a one-off charge of between 19 and 34 per cent of funds to settle old tax bills.

Swiss banks will pay the UK an up-front sum of SFr500 million (around $629 million). The agreement takes effect in 2013, subject to legislative scrutiny in the UK and ratification by Switzerland. Negotiations on the issue started in October last year.

A deal had been expected and was broadly in line with what industry figures had predicted. It is similar to a deal inked by Switzerland in Germany a few weeks ago. A number of countries have been putting pressure on Switzerland to help crack down on offshore tax evaders.

A statement from HM Customs & Revenue today said the agreement will raise “billions of pounds for the UK”.

From 2013, a new withholding tax of 48 per cent on investment income and 27 per cent on gains applying to those who have not previously told us about these assets will ensure the effective future taxation of UK residents with funds in Swiss bank accounts. The new charges will not apply if the taxpayer authorises a full disclosure of their affairs to HMRC, a statement from that organisation said.

The agreement includes the following provisions: an anti-abuse clause that will prevent the promotion of avoidance by Swiss banks; a programme of audits, overseen by a new UK-Swiss joint commission, will ensure that banks are complying with their obligations; Switzerland will collect data on the destination of funds withdrawn from the country following the announcement of this agreement, and will share that data with the UK; and there will be no clearance of past liabilities for those involved in criminal attacks on the tax.

Any person who has failed to disclose their Swiss assets when challenged will not be able to benefit from the clearance of past tax liabilities.

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.