By Max Clarke
Chancellor George Osborne’s plan to tax the accounts of UK taxpayers held in Swiss banks, announced last week, was widely met with praise.
“We will be as tough on the richest who evade tax as on those who cheat on benefits,” the Chancellor himself boldly stated, whilst accountancy firm partner and UK200Group member, Anthony Harris, welcomed the ‘fair’ collection of tax liabilities.
However, a number of question marks about its feasibility and effectiveness exist above the plan, which is expected to generate revenue for the UK coffers of up to £6 billion annually.
“Opinion on the UK Swiss Tax deal seems to be split between those claiming it a pragmatic solution and those deeming it treachery,” commented Seamus Murphy, senior tax manager of Taxback.com.
It's probably fair to say that both sides can justify their position. The devil will be in the detail and we expect the text of the agreement to be released in a "few week's time" according to the Swiss Federal Department of Finance (SFDF).
Even from what we know, there are some questions marks over this agreement:
• The agreement is expected to raise £6 billion for HM Treasury and the Swiss banks will upfront CHF500 million of this. The Swiss - German agreement signed earlier in August, however, tied the Swiss banks to upfronting CHF 2 billion. The SFDF press release, which incidentally is far more informative than anything coming out of HM Treasury, puts this discrepancy down to "the different business volumes concerned". With £6 billion purportedly at stake, CHF 500 million still seems on the light side.
• The back tax rates of between 19% - 34% only apply to accounts still open as at 31 May 2013. It's safe to assume that anyone with something to hide will be actively looking at moving their funds somewhere a little more opaque and will have nearly 2 years to put arrangements in place. Interestingly, when anti-avoidance legislation is announced at Budget time the effects tend to apply from the day of announcement to stop taxpayers taking advantage; the 2-year window in this agreement stands in stark contrast to this approach - one can only speculate as to why.
• Rather more perverse is the fact that the back tax "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." The taxes, interest and penalties which would follow disclosure are likely to be far in excess of the back tax. Taking a rather dim view of human nature, the incentives in this statement seem to be actually encouraging non disclosure.
• The withholding rates of 48% for investment income and 27% for gains we are told will also "satisfy UK tax liabilities on the income and gains". Given that both rates are less than the top rates that apply in the UK can we expect to see UK HNWs being advised to put their money into Swiss accounts to skim the difference between the UK top rates and the withholding rate?
• One interesting note in the SFDF press release which is not mentioned in the HM Treasury release is the limit on UK information requests; the UK can state the name of the client but not the name of the bank, the request must be on plausible grounds ("so-called fishing expeditions are not permissible") and the number of requests cannot exceed 500 annually.
Of course from a pragmatic point of view, £6 billion is still £6 billion and whether the money could be raised otherwise is questionable. It does of course beg the question as to whether the Swiss intend to sign similar agreements with smaller countries? Or is tax evasion by taxpayers outside of Germany and the UK ok? It seems strange that two of the EU's leading powers would negotiate these agreements outside of the EU framework. If they have the clout to do it alone then surely the EU as a whole would have been even better positioned.”
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