The following press release was issued by the Tax Justice Network this morning, and I'm proud to be associated with it:
- UK/Swiss tax deal could see UK lose money
- 10 loopholes identified that mean this agreement won't deliver
- TJN urges immediate cancellation of agreement
An agreement between the UK and Swiss governments, which 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.
A forensic analysis of the agreement by the Tax Justice Network reveals a series of fatal flaws in the two-week old tax deal. Though the analysis focuses on the UK, it is of great relevance to Germany, which recently signed a near-identical deal with Switzerland under similar false promises, as well as for other countries considering signing similar bilateral deals.
The UK-Swiss deal, signed on 6 October, is supposedly designed to capture assets held by wealthy UK residents who have evaded taxes by secreting their fortunes in Swiss banks.
But the 10 loopholes identified by TJN — and we believe there are more loopholes than that — means there is virtually no chance the agreement will raise anywhere near the £4-7bn suggested by Dave Hartnett.
The loopholes provide numerous ways for accountants, lawyers and bankers to help their UK clients escape the new rules.
Loopholes include:
- Provisions which allow UK wealthy individuals who hold their assets in so-called discretionary trusts, foundations and similar structures to evade the new rules. These structures are extremely popular with wealthy tax evaders and make it impossible to identify who currently owns the assets. Accountants and lawyers who set these structures up are poised to do a roaring trade.
- Wealthy UK individuals can side-step the rules by creating trading, manufacturing or commercial operations as these fall outside the scope of the new deal.
- Branches of Swiss banks in other countries are not included in the provisions so UK Swiss banks account holders can simply move their assets to a foreign branch of a Swiss bank to escape the agreement's scope.
- While the new deal includes interest, dividends and capital gains on ‘bankable assets', it crucially does not extend to:
- Wages;
- Royalties;
- Income on property;
- Directors' fees; and
- Loans
This allows advisers to UK residents to siphon out benefits through these routes, untaxed.
The deal does not come into force until May 2013 allowing 17 months for advisers to make alternative arrangements and move assets to escape the deal.
These loopholes and more besides (see accompanying in-depth report) leads the Tax Justice Network to challenge claims by HM Revenue and Customs (HMRC) that this agreement will see a £4-£7bn inflow of tax receipts into the UK.
TJN regards this as a major over-estimation which misleads the British public. In fact, as we argue in our report, there is a real likelihood the serious loopholes, flaws and knock-on effects will actually reduce the already pitiful tax take from UK individuals keeping their assets in Swiss banks in the medium and long-term.
TJN fears this deal will also undermine ongoing efforts to improve transparency and tackle tax evasion through the European Union Savings Tax Directive. An initiative that Switzerland — along with Austria, Luxembourg and Jersey — are doing everything in their power to scupper.
John Christensen, director of the Tax Justice Network, said:
“It's hard to see how the British public will benefit in any way from this flawed agreement. Worse, it will reverse years of progress made by the EU towards tackling tax evasion through automatic information exchange. It is impossible to see how the HMRC can describe this deal as being in Britain's interests.”
Nicholas Shaxson, author of Treasure Islands - tax havens and the men who stole the world, said:
“There is a very strong likelihood that that this deal which guarantees tax haven secrecy, will spread like a cancer through the global financial system. This is because many countries are now considering similar agreements. They are either tax havens that want to copy Switzerland, or victims of tax evasion that want to copy the UK. This deal has to be killed.”
Dr David McNair, Economic Adviser at Christian Aid, said:
"This stunning analysis from the Tax Justice Network shows that the UK's deal with the global headquarters of bank secrecy is likely to undermine the UK's tax revenues as well as those across the developing world. It's no wonder Swiss bankers and their clients are delighted. But everyday people in the UK and developing countries will lose out. It is imperative that the UK now takes strong action on financial secrecy at the G20 in Cannes.”
Contacts:
Nick Shaxson +41 79 477 1070
John Christensen +44 797 986 8302
Richard Murphy +44 777 552 1797
Notes for Editors
1) The Swiss-UK tax deal retains the principle of Swiss banking secrecy. In return, tax evading UK citizens will pay a charge of 19% - 34% of the absolute value of their account. In addition, they will pay taxes on subsequent income of between 27% and 48% annually. Switzerland will pay the UK 500 million Swiss Francs (about £350 million) of this up front.
2) Estimates of the amount of UK taxpayer assets in Switzerland range between £40bn and £125bn. In 2010, the UK received £16.9m in tax from Switzerland under a withholding tax arrangement in the context of the EU Savings Tax Directive. That Directive is also full of loopholes, which are being patched up.
3) Historical revenues from the EU Savings Tax Directive are the only realistic benchmark against which estimates can be made for the UK-Swiss deal. Our calculations show that the absolute maximum revenue for this deal is £1 billion from the capital charge — but almost certainly it will be far lower than that. Future income will most likely be lower than under the current EU Savings Tax Directive. Britain's only certain revenue from this deal is the CHF 500 million (£350 million) up-front payment.
4) Some loopholes stem from the fact that this is a bilateral deal, unlike the EU's multilateral arrangements. Any countries considering similar deals should be aware that it is impossible to close these loopholes without a multilateral approach.
5) The analysis of the UK-Swiss Tax Agreement was conducted by Nicholas Shaxson, author of Treasure Islands - Tax Havens and the Men who Stole the World, in consultation with several people inside and outside TJN.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Hartnetts rantings
…there is still no adequate explanation of why those with Swiss accounts facing the one off deduction will not simply close their account before 31 May 2013 and move their funds to other jurisdictions. Bad news for Swiss bankers perhaps, but possibly not good news for the UK Exchequer! Mr Hartnett claims that: “this agreement will ensure that we know where money that flees Switzerland is heading. We won’t be far behind.” .
Yet all that the agreement provides is that, “the Swiss authorities will give HMRC information about the top 10 destinations which they identify as places where money is moved to“. As with a number of recent, high-profile HMRC announcements, there seems to be a slight disconnect between the bold language of the press release and the detail of the new policy being heralded.
Even to a novice in taxation like me, Richard, these loopholes are so obvious that I simply don’t believe they are anything other than deliberate ‘bolt holes’. The only other explanation could be that HMRC are now so stripped of experienced staff that they let a new appointee lose on drafting this agreement. But then that would be a serious failure of the responsibilities of senior management wouldn’t it? Oh yes, I forgot, Dave Hartnett!!!!
They won’t be stripped of staff soon.
Wait until the private companies start to get tax work…..lets see how the “big four” manage to straddle the fence when they get to be tax collectors as well as the avenue for tax avoiders.
More inane dribble from the Rubik architects..
The Swiss Bankers’ Association, an industry body that held talks with authorities during drafting of the treaty, disagrees. “There is no legal way for a British person to remain entitled to his or her assets in Switzerland in any way while at the same time evading identification,” . Sindy Schmiegel Werner, head of U.K. communications at the SBA, told Bloomberg News by e-mail.“There is no possibility to sidestep the scope of application of the existing tax agreement.”
Clearly SBA haven’t even read the loopholes before retorting from the hip. The loopholes all deal with precisely how the UK resident avoids being identified as a beneficial owner! So Sindy’s reply means “if you don’t use the loopholes, you will be caught”. Woohoo!
This is almost as good as Dave Hartnett saying if you use the loopholes, you can be subject to penalties. As if penalties scared the account holder in the first place!
This is an important report and a great blog. Thank you. This agreement is so obviously a victory for the immoral flank of Swiss society who will continue to rake in enourmous profits at great expense to the tax base of the UK. It will also cost most other countries of the EU who have had their solidarity undermined and the community of countries who need to raise taxes to support their societies.
You say, “The loopholes provide numerous ways for accountants, lawyers and bankers to help their UK clients escape the new rules.” As you well know, none of the large accountancy firms (or lawyers) would have anything to do whatsoever with helping their clients evade taxes. If any individuals did, they would be marched from the premises immediately.
But the presence of these firms in tax havens gives those places credibility and cover that lets millions evade tax
Yeah sure. Using loopholes is “legally avoiding taxes” .. so say accountants.. Nudge nudge wink wink.