The United Kingdom and Switzerland have reached an agreement to tackle offshore tax evasion. The new deal promises to bring in much-needed revenue from individuals who have been avoiding disclosure, some possibly for many years. However, a side effect of the proposals may be to encourage Swiss account holders who are not domiciled in the United Kingdom, and pay UK tax on the remittance basis, to move their accounts from Switzerland to other offshore financial centres, such as Singapore or Hong Kong. Such individuals pay UK income and capital gains tax only on moneys arising in or brought into the United Kingdom; in many cases, they will owe no UK tax on the money that they hold in Swiss accounts. A statement by the Swiss Federal Department of Finance indicates that the agreement contains special rules for non-UK domiciled individuals. However, the statement released by the Treasury mentions no separate arrangements of this kind. Unless such rules enable non-UK domiciled individuals to avoid disclosing the existence and details of their Swiss bank accounts to the UK authorities, many of these account holders may prefer to maintain confidentiality over their offshore assets by moving their accounts out of Switzerland before the deal takes effect in 2013.
The deal provides for a one-off charge of between 19% and 34% of a Swiss account held by a UK resident, which will be taken by the Swiss bank and given to Her Majesty's Revenue and Customs (HMRC) in 2013. The exact percentage will be determined by the size of the account and the period for which it has been held. Thereafter, an annual withholding tax will be deducted from interest (at 48%), dividends (at 40%), other income (at 48%) and capital gains (at 27%). There will also be an upfront payment of Sfr500 million from Switzerland to the United Kingdom.
For reasons relating to Swiss banking secrecy, bank account holders will remain anonymous - payments will be deducted and made by the bank without details of individual accounts being revealed to HMRC. Account holders will receive certificates stating that they have paid a charge. They will be able to reclaim moneys from HMRC if they consider that they have been overcharged - although they will have to disclose details of the accounts in question to HMRC in order to do so. The one-off levy and annual tax can be avoided if full disclosure is made to HMRC. This is where the issue may arise for tax-compliant but privacy-conscious non-UK domiciliaries.
Under the deal, the UK government will be able to request bank account details for up to 500 people a year from Swiss banks, which will be required to disclose such information.
UK individuals who have undisclosed UK tax liabilities in respect of Swiss bank accounts will have to choose between: maintaining their anonymity in respect of such accounts and paying the one-off levy (and future withholding taxes); or disclosing their accounts to HMRC, possibly as part of the Liechtenstein disclosure facility, and perhaps paying less in back taxes and penalties under that regime.
For further information on this topic please contact Anthony Thompson at Lawrence Graham LLP by telephone (+44 20 7379 0000), fax (+44 20 7379 6854) or email ([email protected]).