The serious press has picked up and covered the Tax Justice Network's new report on the flaws in the UK - Swiss tax deal.
The following are some highlights:
Swiss-U.K. Tax Agreement May Be 'Revenue-Negative,' Group Says
Bloomberg - Leigh Baldwin - ‎7 hours ago‎
Switzerland's decision to impose withholding duties on untaxed British funds may generate only a “fraction” of anticipated revenue, the Tax Justice Network said.
Swiss tax deal could end up costing UK
The Guardian (blog) - ‎7 hours ago‎
The UK's tax agreement with Switzerland will not bring in as much revenue as expected, critics say. Britain's controversial tax deal with the Swiss government will raise considerably less than claimed
'Fatal flaws' in UK-Swiss tax deal attacked
Financial Times - Vanessa Houlder - ‎11 hours ago‎
Campaigners are stepping up their attack on a newly signed tax deal struck with Switzerland, which they say is subject to a series of “fatal flaws” that will give evaders a cost-free means of maintaining their anonymity.
Revealed: Loopholes in Swiss tax deal mean £7bn windfall could be lost
Bureau of Investigative Journalism - Nick Mathiason - ‎7 hours ago‎
An agreement between the UK and Swiss governments, which beleaguered permanent secretary for tax Dave Hartnett has stated will raise between £4bn — £7bn, is so fundamentally flawed it could actually lose the UK tax revenue.
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Gotta love the retorts – Swiss Bankers Association says no beneficial owner can escape the tax, yet the loopholes all show how to escape being deemed a beneficial owner (relevant person).
Unsurprisingly, Deloittes say all allegations are unfounded and exaggerated, but don’t demonstrate a single error by TJN.
The best is HMRC who say if you avoid this tax, you will be subject to penalties. As if that deterred anyone with a Swiss bank accounts in the first place!
It is a very thorough report. The problem with the treaty is that is both a piece of tax legislation, which always contains numerous loopholes, and an international treaty which is by definition a compromise resulting of hard-nosed nogotiation. For these reasons and more, it would be foolish for either of the contracting parties to claim that it is perfect.
The interesting debate here is whether there is/was a better way to move forward. The comment in the FT is spot on: “Much of the disagreement over the merits of the deal revolves around the likelihood of Switzerland ever providing automatic exchange of information. Revenue & Customs officials thought there was little chance of Switzerland yielding to pressure from the EU and elsewhere on information exchange. But critics believe that the UK deal — and a similar deal struck by Germany — undermined the otherwise realistic prospect of a concession on this point.”
The truth is that there is no agreement among EU member states about automatic exchange and the current draft of the revision of the EUSD have dropped the requirement for Luxembourg and Austria to abandon the withholding regime. Even Mark Morris (Hi Mark) has accepted that (here http://bit.ly/teeV0i) “… I have always advocated that the only way for unanimous approval is withholding tax rather than exchange of info. For the moment, exchange of info will be a future battle….”
Darren! (alien)
Boy am I glad you had the chutzpah to show up again, boychick.
http://www.europolitics.info/europolitics/rubik-agreements-with-switzerland-draw-barrage-of-criticism-art316477-46.html
Ahem, cough, nudge nudge.. about your repetitious assertions that the EU Commission would never intervene against Rubik.
The European Commission is planning to attack the tax agreements concluded by Switzerland with Germany and the United Kingdom, on 25 October in Strasbourg. It finds that Berlin and London have encroached upon the Union’s powers by negotiating bilateral arrangements with Berne that interfere with savings taxation rules.
Taxation Commissioner Algirdas Semeta will answer that evening an oral question by British Liberal Sharon Bowles, on behalf of the EP Committee on Economic and Monetary Affairs (ECON), which she chairs.
MEPs question the compatibility of these Rubik agreements, set to enter into force in 2013, with EU rules on taxatin of savings income, which provides for a 35% withholding tax at the source (not in full discharge of liability) on interest earned on savings. More generally, they wonder whether states have the power to negotiate such bilateral tax agreements and whether the Rubik system may present an “obstacle” to revision of the EU savings taxation directive and of the EU’s agreements in this area with Switzerland, Liechtenstein, Andorra, San Marino and Monaco. Will not Rubik agreements “have the effect of halting the move towards an automatic exchange of information for tax purposes,” they ask.
The question answers itself. Luxembourg and Austria have already seized the pretext of Berne’s arrangements with London and Berlin to hold up the savings taxation issue in the EU.
In the context, Commissioner Semeta plans to take a very hard line, on 25 October, and to denounce an abuse of power by Germany and the United Kingdom — except no doubt for the amnesty operation, which the Commission does not have the competence to prevent.
The Commission has had to make political trade-offs, since the institution’s legal service is much more determined to torpedo the Rubik agreements than the sectoral directorates-general (taxation, etc), which are quite taken with the ideas of certain precise provisions of the compromises: the rate for Germany, “facilitated” access to British and German financial services markets promised to Berne, etc.
For some, there is no question of the Commission launching infringement proceedings against Germany and Britain yet since their agreements with Switzerland still have to be ratified.
Mark — keep it civil here. It is tough to be on the losing side of an agreement but it does not justify insults (boychick? alien?). Why Murphy tolerates this type of abuse is beyond me.
Semeta is all cheap talk. He is “all hat, no cattle” on this. Actually the europolitics article that you have linked already mentions some of the limits to what he can do: “Commissioner Semeta plans to take a very hard line, on 25 October, and to denounce an abuse of power by Germany and the United Kingdom — except no doubt for the amnesty operation, WHICH THE COMMISSION DOES NOT HAVE THE COMPETENCE TO PREVENT.”
It would be interesting to hear on what legal basis he thinks he can attack German and the UK. Under EU law, tax remains a sovereign national matter, and member states are free to tax their residents as they choose. Member states are also free to enter bilateral agreements with non-member states in those areas where they have retained national sovereignty.
Much has been made about the fact that the EU could object to the withholding rate under Rubik (26.375%) on the basis that it is lower than the rate under the current EUSD (35%). But that is baseless, the 35% applies in the context of the withholding regime, whereas Germany and Switzerland have made it unequivocally clear that Rubik constitutes “automatic exchange”. You cannot compare the two rates because they apply to fundamentally different disclosure regimes. And in any event, it is unclear why the EUSD would apply in the context of an agreement between Germany and Switzerland, as the latter is not an EU member state.
Rather than engaging in juvenile name-calling, why don’t you share your views on these issues? [btw, the rest of the europolitcs is really amusing. A Zurich-based tax advisor who would rather remain anonymous?]
I tolerate it because you are so clearly wrong Darren
Hi Darren
Calm down chum. “Boychick” is a friendly colloquial expression. No chastising meant.
I agree with you. Yeah, who cares about the amnesty? However let’s see what “all hat no cattle” does about the conflicts with the EUSD and granting Swiss banks access to an EU MS.
By the way, are you not “Alien Edourdo” on other blogs? Same arguments, same style?
Richard – please help by pointing out what you believe is wrong in the post above.
I have done so endlessly
Please do not waste my time
Mark – I have tried to find the transcript of Semeta’s intervention in the EU parliament but could not find it. There were only second-hand press reports in French (see here: http://bit.ly/tO9Cx6), conveying the impression that the Commission is far more restrained in its challenge against Germany and (especially) the UK than the earlier europolitics.com report had suggested.
Semeta’s preliminary objections to the treaty center on conflicts with the EUSD in 2 areas: the withholding rate in the German deal (26.375% vs. 35% in the EUSD), and the fact that the withholding fully discharges the taxpayer’s liability. This looks very weak. Do you have any views on that. Please be precise.
Semeta’s other objection is about the member states’ ability to enter these agreements to start with. He seems to argue that this is an area of competence for the EU and not for member states. This also looks weak, since taxation has remained a national matter (unlike say transportation or farming). In these areas, member states retain the right to conclude bilateral deals with non-EU jurisdictions.
Seriously, I would like to understand where the EU and you are coming from. Having spoken to a few people in Switzerland about the treaty, it all looks legally very tight. Both the Swiss and German governments have obtained legal opinions to confirm that the treaty does not breach any domestic or international laws.
Semeta is livid about the way these deals were negotiated (even the TJN report accepts that the Commission was not even kept informed about the German negotiations), but this is the wrong state of mind to start diplomatic confrontation.
Pal,
I’ll give you an analogy of what the EU Commission will be doing..
Two bulls standing on top of the hillock surveying the field of dairy cows below on the pasture. little bull turns to big bull and says, “Let’s run down and service that cow!”.
Big bull says “Be patient. Let’s walk down and service all the cows”.
So don’t fret mate, Germany / UK will be serviced thoroughly.
Mark – you have made some predictions in the past that turned out to be very wild off the mark. I wish you better luck with this one. I don’t believe the Commission has got game here, but I could be surprised.
Incidentally, and this is politics, the Commission would only go ahead with a heavily politically charged court action if it had a credible plan to make significant progress with the EUSD revision. It may happen, but Luxembourg and Austria will make sure that it would only be under the condition that automatic exchange of information is taken out.
Are you sure that this is the outcome that you and the various Wyatt Earps in the tax justice movement would like to see?
Darren
Actually I am not part of TJN at all. In fact I differ with them on their major policies. I am just a pure tax technician who consults for both sides of the fence. I have yet to come across a lawyer / accountant who understands the future technical direction of the savings tax and other EU cross border directives in the pipeline.
I do not give a muffin if Luxembourg has to automatically exchange information or withhold tax. What gets my goat up, is when LU / CHF / AT / JE et al, demand withholding tax option, and then find a loophole around that withholding tax.
Same with the Rubik Swiss tax agreement. I don’t give a muffin if UK-residents have to pay up to 48% tax on income.. but again, it incenses me, no end, when incompetent HMRC officials were fooled into accepting the most simple and basic loopholes concerning everyday structures used offshore.
What kind of amateur muppet in HMRC didn’t see that Luxembourg life wrappers were out of scope? What moron in their infinite wisdom agreed to only tax “non-commercial entities”. What maroon exempts a discretionary trust but then tackles the settlor in the Lichtenstein Disclosure Agreement. Why didn’t HMRC take the opportunity to include Singapore / Bahama branches of Swiss banks, after all its part of the same Paying Agent entity.
Unlike TJN, I don’t hope the deal is killed off. I hope that the EU Commission enforces all conflicts with the EUSD amendments are resolved, i.e. close the ten loopholes identified by TJN.
So don’t attack Richard by saying, see even Mark doesn’t mind withholding tax. They have their goals, and I have mine. I think mine are more realistic.
PS: If you’re in Zurich one day, pop by for a visit. I noted your quip to Richard about Schweitzer Deutsch.
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