Switzerland » Tax Research UK

The loopholes which destroy HMRC’s claim that Swiss tax deal will see a £4-7bn Treasury windfall

Corruption, Secrecy jurisdictions, Switzerland, Tax evasion, Tax Havens, Tax Justice Network 8 Responses »

Oct 252011

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.

The full report is here.

HMRC’s achievement – the legitimisation of tax haven abuse

HMRC, Liechtenstein, Switzerland, Tax evasion, Tax Havens, Uncategorized 19 Responses »

Oct 182011

As Bloomberg reports:

Liechtenstein Prime Minister Klaus Tschuetscher said the principality will seek a withholding tax on undeclared German assets in its banks along the lines of a recently signed German-Swiss tax agreement, Die Zeit reported.

Liechtenstein’s government is in talks with Germany’s Finance Ministry about an agreement and Tschuetscher said he prefers new rules to take effect next year at the same time as the Swiss accord, he told the newspaper in an interview. There should be no regulatory gaps between Switzerland and Liechtenstein with respect to Germany, he said.

Well of course Liechtenstein wants that. Since the vast majority of assets in Liechtenstein are held in structures where there are no legal owners no assets will need declaration but the appearance of compliance and cooperation will be high whilst the game of abuse goes on.

This is what Dave Hartnett at HMRC set in motion by signalling the UK would sign such a deal. It’s still not clear Germany will, but he did for the UK presumably with the approval of George Osborne.

Remember that when you can’t get the medical services you need or your children can’t get the education they need: the Tories have gone out of the way to help the rich keep their assets well out of reach of tax authorities here and elsewhere, and deliberately so.

That’s the reality of what is happening. It’s neo-feudalism in action.

The UK signs its pernicious Swiss tax deal

Corruption, HMRC, Switzerland, Tax evasion 5 Responses »

Oct 072011

From the Treasure Islands blog: a short article as an immediate reaction to the UK-Swiss tax deal. A much longer article, complementing this, will be posted on the TJN site very soon but as Nick Shaxson observes now:

I can only conclude, given that they now know this deal won’t collect the money, that it has been conducted for malign purposes, to preserve financial secrecy on behalf of an unaccountable and wealthy élite.

The 2011 Financial Secrecy Index top slot goes to Switzerland

Financial Secrecy Index, Secrecy jurisdictions, Switzerland, Tax Havens, Tax Justice Network Comments Off

Oct 042011

The top slot in the 2011 Financial Secrecy Index goes to Switzerland – now considered the most abusive secrecy jurisdiction in the world as a result. There is good reason for that. As the Tax Justice Network says:

Since the financial crisis emerged, Switzerland’s share of the global market in offshore financial services has increased, as a result of its role as a safe haven.Although Switzerland has signed a number of OECD-style information exchange agreements, which have allowed a limited penetration of Switzerland’s fabled bank secrecy, we consider these operationally ineffective, so they have only a limited impact on our ranking (what is more, many other jurisdictions competing with Switzerland in our rankings have signed significant numbers of information-exchange agreements too.)

Switzerland also continues to resist automatic information exchange — the effective kind – and its widespread involvement in the administration and use of trusts, foundations and offshore companies remain a major barrier to tackling tax evasion and illicit financial flows.

In partnership with Luxembourg in particular, Switzerland has fought hard against efforts by the European Union to expand automatic information exchange and tighten up on tax collections, preferring to play a divide-and-rule game by signing individual deals with powerful EU players countries such as Germany and the United Kingdom.

Swiss banks have also sought to mitigate the limited efforts of crackdowns elsewhere – notably by the United States – by increasing their efforts to attract illicit flows from developing countries, to make up a supposed ‘shortfall,’ and by increasing their activity in Asian centres such as Singapore and Hong Kong, where there is perceived to be less ‘heat.’

Switzerland remains a major, active and interventionist impediment to global financial transparency, and despite some recent timid improvements it fully deserves its position at the top of our ranking.

See TJN’s full report on Switzerland here.

The UK Swiss tax deal – not so fast the EU begins to say

EU STD, Europe, Switzerland, Tax evasion 9 Responses »

Sep 262011

I hear rumours from the EU Commission on the UK Swiss tax deal.

First rumour is forget the Swiss German deal – it won’t get through the parliament so the UK is going to be in the Swiss dodgy deal market all on its own.

Second, forget the 26% tax rate being less than the EU savings tax rate, although that’ obviously unacceptable

The reality is that the official policy of the EU Commission is automatic exchange of information, nothing less. This is a principle they have not wavered from one iota with the EU savings tax amendments and even set in concrete with the Administrative Cooperation and Mutual Assistance on Tax Matters Directive adopted unanimously by ECOFIN in February this year.

The German and UK agreements with Switzerland apparently state that “withholding tax is equivalent to automatic exchange of information in the long-run”. Well, so they might. But that’s in conflict with the EU policy. In that case the EU will “intervene” i.e. block the entire agreement by saying it is illegal within the EU.

Why will they do that? Simply because the EU Commission doesn’t believe the PR that withholding tax is equivalent to exchange of information, besides which the EU Commission believes the withholding tax agreement has loopholes in which case an ineffective agreement with the Swiss certainly doesn’t match automatic exchange of information.

So Dave Hartnett may have signed a deal.

But there’s a good chance he may not actually see it come about.

Back to the much better European Union Savings Tax Directive then.

I beg to differ, Mr Hartnett

HMRC, Switzerland, Tax evasion 6 Responses »

Sep 132011

Dave Hartnett, boss of HMRC, was in front of the Treasury Select Committee yesterday defending his appalling and almost certainly illegal deal with Switzerland.

As the Guardian note:

HMRC permanent secretary for tax Dave Hartnett told the Treasury sub-committee on Monday that in the next 10 years breaking down Swiss banking secrecy certainly “seemed very unlikely”.

Oh yes? That’s why the EU was confident on making progress on the European Union Savings Tax Directive with it was it?

As the Guardian also notes:

Tax campaigner Richard Murphy has argued that the deal has delayed international efforts to break down Swiss secrecy. “I am not saying Swiss bank secrecy was going to break down tomorrow. But the US is making big progress, the direction of travel is substantially in the direction of openness. This deal has guaranteed that anonymity is reinforced,” he said on Monday.

It’s true: I did say that, just before cooking supper last night.

And I’m far from alone in thinking that far from Hartnett’s deal helping, it’s hindering (unless of course you’re a tax evader, when it’s great news). As Europolitics note:

Luxembourg may well put a spanner in the Commission’s works, though. Its finance minister released a statement [following the Swiss deals] noting that “the model of withholding at the source – a model Luxembourg has always defended – is a key element of the agreements,” which at any rate will “have an impact on the negotiations under way on the directive on taxation of savings income”.

Or, he will use them to scupper advances in tax transparency Europe.

Oh thanks Dave Hartnett, defender of banking secrecy and tax evader’s friend as a result. Great work.

PS Why is the deal illegal? Because HMRC are agreeing not to investigate more than 500 crimes a year however many they find, and that has to be ultra vires their powers – which makes the deal illegal.

Swiss banks are already helping their clients evade the new UK disclosure scheme

HMRC, Switzerland Comments Off

Sep 092011

Accountancy Age reports:

Swiss banks have already begun helping UK clients move their money to Singapore in defiance of an agreement struck with the UK last week, Accountancy Age understands.

Under the terms of the agreement to improve transparency in Switzerland and increase the tax take for the UK Exchequer, UK residents will have to pay a lump sum of between 19% and 34% of the money in their Swiss accounts as of 31 December 2010. This will only apply to accounts open on 31 May 2013.

Supposedly there are penalties on the banks for doing this, but anyone (Dave Hartnett apart) who thinks they won’t be doing so has to be naive in the extreme.

What this amounts to is confirmation that the very people who we are now entrusting to be our unverifiable tax collectors are still doing all they can to help people evade the UK tax system – and will continue to do so in future.

Which shows just how utterly daft we are to believe we can rely on Swiss banks to run the UK tax system for us – which is what they will now be doing.

UK tax deals create “one of largest money laundering operations in history”

Ethics, HMRC, Secrecy jurisdictions, Switzerland, Tax Havens 5 Responses »

Sep 082011

I have reposted the following from the Treasure Islands blog with Nick Shaxson’s permission:

From The Telegraph:

Tax amnesties – such as the deal announced with Switzerland last month – help criminals gain respectability and risk turning HM Revenue and Customs (HMRC) into “one of largest money-laundering operations in history” a leading barrister claims.
. . .
[Jonathan Fisher QC] described the recent agreement between the United Kingdom and Switzerland as a “grubby little deal” and claimed that further tax amnesties planned for next year “present a colossal opportunity for money launderers to legitimise the proceeds of crime”.

Indeed, indeed.

Now HMRC, which I believe to be an organisation filled with dedicated professionals whose work is tainted by its leadership, denied all this, of course:

“This is complete nonsense, there is not a shred of evidence to support these claims. HMRC has robust measures in place to prevent fraud against the tax system.”

Now first of all, they would say that, wouldn’t they? But also – given that they have guaranteed secrecy to UK criminals using Swiss banks, with only very meagre avenues for obtaining information about those accounts, where you effectively have to know the information you’re looking for before you ask for it, and can’t use whistleblowers – how could they possibly know that it is ‘complete nonsense?’

Absence of evidence is a very different thing from evidence of absence. In the absence of evidence, and when secrecy is at the heart of the matter, we have to presume that Fisher is quite right. In fact, knowing that criminals exploit secrecy at every opportunity, how could it be otherwise?

More from the Telegraph, which has recently shown good form in asking difficult questions here:

“Last month’s HMRC offer to Britons with hidden Swiss bank accounts raised questions about whether it was applying one law to very rich tax evaders and another, harsher, regime to the less wealthy.”

It did more than raise questions. This is, quite literally, and quite precisely, what HMRC has done here: create different sets of rules for different classes of people.

The US – Swiss tax dispute, and why the US is sure the UK’s got this wrong

Switzerland, Tax evasion, Tax Havens, USA 8 Responses »

Sep 052011

The following is reposted from the Tax Justice Network blog, with permission:

From Reuters and Bloomberg:

The United States has written to Switzerland to demand it hands over detailed information this week on its citizens using Swiss accounts to dodge tax or see Credit Suisse and nine other banks face charges, newspapers reported on Sunday.

and

Banks may be required to pay up to 2 billion Swiss francs ($2.5 billion) in fines, SonntagsZeitung reported, citing a separate, unidentified person with knowledge of the situation. The U.S. may also seek client details from Swiss wealth managers in addition to the 10 banks, according to the newspaper.

The Financial Times adds:

Switzerland and the US are gearing up for another bruising confrontation over bank secrecy . . . The letter would represent a significant increasing of the pressure on Switzerland to again bend its once watertight bank secrecy rules and deliver further client names to the US.

Here is a description of details added by Switzerland’sSonntagszeitung newspaper, which is one of the two to have broken the story, courtesy of TJN correspondent Steven Eichenberger:

“The Swiss German weekly newspaper, the SonntagsZeitung, has published an article yesterday revealing a correspondence between Michael Ambühl, Swiss state secretary, and James Cole, US Deputy Attorney General.

Ambühl has apparently approached Cole with the idea of introducing a “new” instrument to the 2009 DTA [Double Tax Agreement] between the US and Switzerland, an agreement which has not yet been ratified. This “new” instrument foresees enabling the US authorities to submit group requests without receiving individual names in return. This sounds a lot like the withholding tax solution, except that it is sliced up into several requests. Ambühl must have been guided by the recent success encountered in negotiations with Germany and the UK.

Cole answered that this solution could be tested, but only under the following conditions (listed by the SonntagsZeitung)

He wants comprehensive statistical information about US citizens and their assets in ten Swiss banks (amongst which of course Crédit Suisse, and furthermore the Bank Wegelin (Konrad Hummler), Julius Bär and the Zürcher and Basler Kantonalbank).

The Swiss authorities have to reveal a quantity structure of US assets in Swiss banks

Simultaneously, Cole wants to make use of judicial orders (Grand Jury Subpoena, John Doe Summons) in order to enforce disclosure of customer information with regards to the ten banks

Individual deals will be sought with the ten banks

An agreement for all remaining (not the ten) shall be reached, disclosing “certain account information”

According to the SonntagsZeitung, there is a sense of alarm amongst the Swiss banking community. When reading the article one gets the impression that this is because they will be forced to reveal some information and will have to pay fines as was the case with the UBS. Could this, however, be a concerted plan, by the Swiss government and financial institutions, to sell some names and pay some fines in order to enshrine a DTA very much in favour of Swiss Banks?

We think that the United States, unlike the UK and Germany, is unlikely to be railroaded by too-clever-by-half Swiss proposals. The U.S. has taken the aggressive (and correct) approach: obtaining initial data, then making tax evaders and their pinstripe intermediaries feel the heat, do deals with a few of them in exchange for more data, then spread the investigation further. There’s no telling where this might stop.

Another TJN correspondent, this time based in the U.S., said this:

“The Swiss banking community should prepare for the worst, at least with respect to US clients, either direct or indirect. There is surprisingly widespread consensus here that the UK treaty approach is completely unacceptable.”

Why have Germany and the UK been so feeble, and damaged so much progress?