In a quite astonishing move it seems that the UK has today announced it is to give up British tax sovereignty and has granted power to determine UK taxes to Switzerland instead.
The Swiss have announced today that:
At a meeting in London today between Federal Councillor Hans-Rudolf Merz and the Chancellor of the Exchequer, George Osborne, the two finance ministers discussed cooperation on financial and tax matters. Afterwards Federal Councillor Merz and David Gauke, the Exchequer Secretary to the Treasury, signed a declaration on the initiation of negotiations concerning tax issues between Switzerland and the United Kingdom. They reaffirmed the willingness of both countries to further intensify cooperation in financial and tax matters and to strengthen long-term legal security for market participants.
By signing the joint declaration, Federal Councillor Merz and Exchequer Secretary Gauke have agreed to initiate negotiations on the expansion of cross-border cooperation in tax matters and improved market access for banks. Negotiations are expected to commence at the beginning of 2011. The outcome of the negotiations will then be submitted to parliament.
Switzerland and the UK are confident that the negotiations will lead to a fair and lasting solution in the interests of both states. Both sides agree that a new solution would enable distortions to competition in terms of tax issues to be avoided. UK taxpayers should not be deterred from holding a bank account in Switzerland. In future, however, the possible risk of tax evasion should not impact on the investment decisions of UK taxpayers.
During the exploratory talks, Switzerland and the UK agreed on a lasting solution which respects the protection of bank client privacy. Consequently, the automatic exchange of information will no longer be an issue in relations between the two states. The solution will apply after the entry into force of the agreement to be negotiated (no retroactive effect).
The solution, the details of which are to be clarified during the negotiations, covers the following points in particular:
Regularisation of the past: Untaxed existing assets should be regularised.
Final withholding tax for the future: Future investment income should be covered by a withholding tax, the rate of which has yet to be negotiated. The final withholding tax is a tax at source. After it has been paid the tax obligation towards the country of domicile will have been fulfilled. Extended administrative assistance has been agreed in order to prevent any possibility of circumventing the withholding tax. This envisages that the UK authorities can submit a request for administrative assistance which states the name of the client, but not necessarily the name of the bank. The number of requests that can be submitted is limited and must be well founded. Fishing expeditions are not permissible.
Further elements: Switzerland and the UK intend to tackle the issue of market access for Swiss financial institutions in the UK. The package includes measures to decriminalise banks and their staff.
The proposed solution is designed to coherently and credibly support the Federal Council's financial centre strategy under which the Swiss financial centre focuses on the management of taxed assets.
This is one of the most depressing pieces of news I have read for a long time — and there are plenty to choose from.
The U.K.’s HM Revenue and Customs said last December that withholding taxes don’t meet Organization for Economic Cooperation and Development standards for transparency because client identities remain secret.
U.K. nationals held 59.6 billion Swiss francs ($61.5 billion) in undeclared assets in Swiss banks, Thorne estimated last year, with another 24.5 billion francs in declared assets.
No indication is given as to how these accounts are to be regularised. Indeed, there is no prospect they can be because the £40 billion or so of evaded assets will not have to be declared by name by the Swiss. In that case there is no prospect of UK interest or penalties being charged. In other words David Gauke has just announced his intention to sign a total tax amnesty for UK tax evaders who have used Switzerland. Given that penalties and interest would have added well over 100% to the tax bills it is highly likely that all these evaded assets should have been due to HM Treasury. But Gauke looks like he will give away the whole lot.
But that’s just the past. Look at the future provisions. A person will under this new arrangement suffer an as yet not agreed rate of income tax deduction in Switzerland (35% is mooted, but I bet it won’t be that high) and then they will have no obligation to a) report this income in the UK and b) pay any additional higher rate tax in the UK.
In other words if true then the UK has just done the following:
1) Granted Switzerland the right to set the effective higher rate of tax on investment income in the UK;
2) Granted Swiss banks an everlasting competitive advantage over UK banks — because it will pay all higher rate tax payers to bank in Switzerland henceforth;
3) Denied the UK tax authority the right to make enquiries of their own choosing about the tax affairs of a British person — the Swiss now being granted the right to decide how many enquiries may be made and whether they are appropriate or not.
4) Granted criminal immunity to Swiss bakers who sell tax evasion — so allowing them to commit ongoing crime in the UK.
In the process the UK is:
a) Promoting tax evasion by its citizens
b) Promoting Geneva and Zurich over London
c) Abandoning its right to tax
d) Abandoning its rights to enforce its laws
e) Alienating the OECD
f) Abandoning the fights against tax havens.
That’s not melodramatic: that’s what’s this announcement implies.
And all that because the ministers at the Treasury we now have put their devotion to the free flow of capital above their duty to the country, their duty to tax, their duty to uphold the law of the UK, their duty to support UK banks and their duty to their international partners.
Most of all, they believe they owe more to a tax haven than they do to the British people — on whom they willingly impose billions of cuts whilst granting tax evaders an outright amnesty.
I thought Osborne reached new lows last week.
This week he’s going out of his way to support the criminal classes — albeit those, no doubt, drawn from amongst his friends.
It’s not too hard to say that in the process he reveals the corruption at the heart of this government. Little else could explain such a move.
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