Landmark Swiss Tax Deal Finalised

Thursday, August 25, 2011 Print Email

The main surprise in the landmark tax deal between the UK and Switzerland is the high rate of withholding tax at 48%, says Grant Thornton.

‘Most people were expecting a figure of around 35%,’ said John Brassey, a tax investigations specialist at the mid-tier firm.

Whether UK investors would move farther afield ‘depends on how they feel’, he said. ‘They may move to somewhere like Singapore, or use the Liechtenstein Disclosure Facility, but it depends on the individual,’ he said. The deal could raise up to £5bn for the UK Exchequer.

Chancellor George Osborne flew to Zurich last night to sign the agreement after 11 months of negotiation. It will come into force in 2013 and will operate on a ‘no name basis’ to meet Swiss demands to respect bank secrecy by preserving the anonymity of UK account holders.

The UK deal is similar to the accord the Swiss reached with Germany earlier this month. There will be a one-off ‘windfall tax’ for historical liabilities, levied at between 19% and 34% on the assets in the Swiss bank accounts of UK citizens.This tax will be levied from May 2013 on accounts that were opened before 2010.

The new ‘withholding tax’ on future investment incomes and capital gains will be levied at 48% on interest, 40% on dividends and 27% on capital gains.

Switzerland’s banks have also agreed to pay the UK an initial up-front payment of SFr500m (£384m) in May 2013, with the amount to be deducted from future tax payments.

Brassey said the one-off levy was to clear up historical matters. ‘Up to 30% of stashed money could be going back to the war. It may be money stolen from Jews or people trying to hide their money.’

He said the advantage to the Swiss was that it maintains banking secrecy. ‘But banks like Credit Suisse and UBS want to deal with clean money,’ added Brassey. ‘They want to be able to sell services in the UK and other places and be seen to play by the rule book.’

Osborne said Britain had an even greater obligation in the current economic climate to pursue people who try to avoid paying taxes, declaring ‘The days when it was easy to stash the profits of tax evasion in Switzerland are over.’

Chris Oates, head of Ernst & Young’s tax controversy team said the agreement offered UK residents with undisclosed tax liabilities a chance to ‘wipe the slate clean’, but pointed out that the anonymity ruling meant it would be hard for HM Revenue & Customs to establish whether these individual cases are involved in much wider tax evasion as it will only be based on Swiss assets.

Oates also warned that one side effect of the new legislation could be an increase in assets diverted to Liechtenstein: ‘The Liechtenstein Disclosure Facility only requires a back payment of taxes from 1999/2000 onwards, rather than the total value of assets held in Switzerland. This could prove a more cost effective way to resolve past tax liabilities for UK individuals than the new Swiss arrangement.’

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