Swiss banking

The Swiss banking sector contributes 6.7% of the country’s gross domestic product, almost 10% of tax revenues and provides the country with 142,000 skilled jobs.  Protection of clients’ privacy in financial matters has always been an overriding concern to Swiss banks.  This has given Switzerland the unwelcome reputation of a place where vast amounts of monies could be deposited without fear of disclosure to foreign revenue authorities.

Swiss strategy

In recent times, pressure from the US and the EU have lead to a rethink on the part of Swiss banks.  In a press release dated 24 August 2011 the Swiss Bankers Association have announced that the banks are now focusing on a strategy of the acquisition and management of taxed assets, whilst retaining the protection of client privacy and  making it possible for action to be taken to combat or prevent all tax offences.

A deal between Switzerland and Germany has recently been agreed against a background of controversy after the German authorities acquired stolen information on a number of their citizens holding undeclared Swiss bank accounts.  Now a UK-Switzerland deal has been finalised.

The deal

UK bank clients have two options to regularise untaxed assets held by banks in Switzerland:

  • payment of a flat rate one-off sum; or
  • voluntary disclosure to the UK authorities without a penalty.

Regularisation will be effected by means of an anonymous one-off payment which means that bank clients will have fulfilled their tax obligations in UK.  Although a maximum tax rate of 34% of the assets may apply, the effective tax rate for bank clients is likely to be between 20% and 25% of total assets.  Regularisation also means the clients, banks and their employees will be protected from any criminal prosecution.   The UK has also committed not to use the information from purchase data carriers containing stolen data in future for legal proceedings against Swiss banks or their employees.

The above takes care of past tax liabilities.  Thereafter, the banks will deduct an amount annually from assets held by them on an anonymous basis equivalent to UK income tax.  The deduction of this withholding tax will also have the effect of satisfying any tax liability.  The withholding tax rate will be 48% of interest income, 40% of dividend income and 27% on capital gains.

The Swiss banks have also committed to making an upfront payment of CHF 500 million.

Protection for bank clients

In the event of tax queries, bank clients can prove that they have regularised their assets in Switzerland by providing a certificate received from the banks for this purpose.

A good deal for the Swiss?

The general consensus amongst tax advisers is that this is a good deal for the Swiss, a fact which is no doubt reflected in the unequivocal approval given to the deal by the Swiss Bankers’ Association!  It rids Switzerland of the embarrassment of having been perceived to be a home to vast amounts of untaxed wealth whilst maintaining client privacy and confidentiality.  As part of the deal  there will also be no automatic exchange of information with the UK.  We suspect that Swiss Bankers’ eyes are a-smiling today as the good news is announced.  Whether UK taxpayers should be as euphoric is another matter!

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…and finally

Football is renowned for its intense rivalries and grudge matches: think Spurs v Arsenal, Barcelona v Real Madrid and Rangers v Celtic HMRC.  The latest twist in the long running tussle between the Scottish club and the tax man has seen Rangers threaten to sue HMRC amidst allegations that confidential information on their tax affairs was leaked.  HMRC was unable to comment on the story due to, you guessed it, taxpayer confidentiality.