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.
First, note what a staggering departure this is from the position adopted by Labour, and as importantly by the OECD. As Bloomberg note:
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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The real reason behind this Swiss proposal, is to relieve pressure from the EU on their secrecy. Germany now won’t be bothering them. Spain has already asked for a similar agreement. Expect France and Italy to follow suite.
This also kills off the Mutual Assistance directive which was due to be voted next month by ECOFIN. No ways will Luxembourg agree to automatic exchange of info if Switzerland keeps its secrecy.
To top it all, Swiss banks are simply going to move their UK resident customer accounts to Singapore. So the UK not even going to smell a whiff of the promised billions… that way there will be no more pressure on their banking secrecy and their customers pay no tax.
Let’s also see how the Swiss tackle discretionary trusts without an identifiable beneficiary at the time of receipt of income. of course they won’t, because it will be out of scope of this withholding tax.
Let’s see how they tackle a “commercial legal entity” such as an offshore consulting company. Bet you a dollar to a Rolex that they won’t.
This idea is so full of loopholes. The UK will be promised ten billion but all they’ll get is two fingers. Amazingly stupid of the UK Government to trust the gnomes of Zurich.
[…] comes the news that the UK has signed a deal with Switzerland which surrenders our taxing rights to Swiss banks — and international capital […]
New Labour let these people in by being tory-lite. They have compromised Labour’s record, and the poorest people are now being taken to the cleaners.
[…] comes the news that the UK has signed a deal with Switzerland which surrenders our taxing rights to Swiss banks — and international capital […]
How difficult will it be for the tax evading account holder to give the Swiss bank a change of address? A box number in the Caymans for example.
Now I know what happened with all the Cayman Trust & Company cases I provide for free to UK HM Revenue & Customs two years ago! One or the other way they disappeared because I was not questioned on a single case. It is similar to some German tax authorities except one etc. Questioning me might run someone´s career! It is not the low level tax investigators, it is the top in those organisations. Based on my learing experience to me most of Tax Authorities including some leading Managers in Governments serve not the Society, they serve their career, the Ultra High Net Worth Individuals, Financial Institutions and Multi-National Conglomerates. I am convinced this is pretty close to the truth at least what I have learned supporting Tax Authorities in their “struggle” against tax evadors or even worse …..
Of course, your talk of an amnesty is a figment of your imagination. All it says that British residents should not be deterred from holding accounts in Switzerland, but they are still obliged to declare the income to the UK authorities.
@RogerM
Ummm, errr, gee. Why didn’t anyone think of that, Roger? 😯
Perhaps anti-money laundering rules and anti-terrorist legislation mandates banks verify your address.
@Mark
There is of course no EU consensus on banking secrecy. Some states are pushing very hard for the automatic exchange of information, but others oppose it. Luxembourg has been blowing hot and cold on the issue in the few weeks, but nobody should doubt that they would veto any attempt to impose it, and so would probably Austria.
Public opinions across Europe across Europe are alo highly divided on the issue. Sure, nobody likes tax evaders but at the same time most continental Europeans, especially in the Germanic space, are highly attached to the fundamental right to privacy, and are generally distrustful of state invasions into the private sphere. The German attempts to use stolen data to achieve convictions in cases of tax fraud were met with a fair level of suspicion.
As for the idea that depositors will move their assets to Singapore, this agreement is rather likely to incentivise people NOT to do it. Singapore is in a volatile part of the world, and does not have a 900 years history of stable democratic institutions. This agreement, offering guarantees of privacy against the payment of acceptable levels of tax, will ensure that most people keep their assets in Europe,and contribute to their respective governments’ treasury.
And finally, there is probably not that much “grey” British money in Swiss banks anyway. Brits have historically banked elsewhere. Some people believe that most deposits will be from non-domiciled UK residents anyway, which the UK does not tax.
“…. most of Tax Authorities including some leading Managers in Governments serve not the Society, they serve their career, the Ultra High Net Worth Individuals, Financial Institutions and Multi-National Conglomerates.”
And Regulatory Authorities as well; particularly if based in “offshore tax havens” …
@Mark
So you believe that UK anti-money laundering rules and anti-terrorist legislation will prevent the wealthy from registering an alternative address with a Swiss bank? I think not, Mark. It is very easy to have more than one perfectly legal address.
@RogerM
These are not UK anti-money laundering or anti-terrorist rules.
There are very strict KYC, anti-money laundering or anti-terrorist laws in Switzerland, just like in all leading countries. Those are very often much more stringent than in the UK.
[…] wrote yesterday about the Swiss / UK tax deal that was signed by the ConDems yesterday. I said: A person will under […]
@Million Dollar Babe
Then they could automatically information exchange with ease couldn’t they?
@Richard Murphy
I would have thought so. The opposition is of political nature. Like many in Europe (and even more in the United States), the Swiss put a high value on the right to privacy.
By the way, this agreement will not suspend Switzerland’s commitment to offer assistance in cases of evasion and fraud.
@Million Dollar Babe
We are talking here about an existing client registering a change of address. It is as simple as writing a letter. I know because I have an account at a UBS branch and that’s all it took. Not a change of address to the Caymans I hasten to add, simply to another UK address. But if it had been the Caymans it would have been the same – just a letter.
[…] wrote yesterday about the Swiss / UK tax deal that was signed by the ConDems yesterday. I said: A person will under […]
@Rudolf Elmer
Don’t give up. What you do does have an effect. Tax evaders in Germany have received jail sentences for their criminal behaviour. This would bot have happened without the work of whistleblowers.
@RogerM
That is because you were moving within the same country. If you had registered an address in another jurisdiction, proof of residence would have been required, especially if you had moved to a country of which you are not a citizen.
@Million Dollar Babe
But due to secrecy we have no idea if you’re speaking the truth
@Richard Murphy
And you have no basis to claim that I am not….
Why don’t you try to open an account there, then change your address, and report your experience. It would surprise you.
@Million Dollar Babe
I’m not at all sure about that. Neither do I have your confidence that the legislation protects the honest from those who commit tax fraud. It clearly does not. Were I to have a house in the UK and an apartment in Switzerland, France or anywhere else and enough money to spend time in each I don’t think I would have much trouble in deciding which address I should give to the bank and I would not expect too much of a problem in getting them to accept it.
@RogerM
I agree.
But if anyone has this portfolio of properties, one can safely assume that this person would already optimize his/her residence position for tax purposes. Whatever he/she does with the Swiss assets would simply result from that planning.
[…] of Christian Aid has an article on Comment is Free at the Guardian this morning. Talking about the proposed tax agreement with Switzerland he says: The government might call it pragmatism but its talks with Switzerland, about how to […]