It's extraordinary to note that on the day before the government supposedly announces a big crack down on tax avoidance by the wealthy in the UK it has today signed a further deal with the Swiss government on tax.
The press release on the new deal is here and says:
Bern, 20.03.2012 - Today in Brussels, the Protocol of Amendment to the withholding tax agreement was signed by Michael Ambühl, State Secretary in the Federal Department of Finance, and Dave Hartnett, Permanent Secretary for Tax, HM Revenue & Customs. The agreement remains unchanged in essence. Interest payments will be excluded from the agreement's scope. At the same time, it will be ensured that UK taxpayers can discharge their tax liability on interest payments. Effectively, nothing will change for bank clients; their tax obligations will be fulfilled. Only the legal structure will change. The concerns of the EU Commission regarding compatibility with EU law have been removed. Inheritance is now also covered by the agreement in order to eliminate a loophole. In the case of inheritance, the heirs must consent to either collection of a tax or disclosure.
The agreement not only respects the protection of bank clients' privacy applicable in Switzerland but also ensures the implementation of the UK authorities' legitimate tax claims. In addition, mutual market access for financial services will be improved. The agreement requires the approval of parliament in both countries, and should enter into force at the start of 2013.
I wrote last year about this tax deal, on many occasions. What it in effect does is three things:
1) It grants to Swiss banks the duty to assess and collect tax from their UK resident tax evading clients who refuse to disclose the existence of their accounts to H M Revenue & Customs. This arrangement would of course be of no interest to anyone who had disclosed their interests here. So it can only be used by criminals - of whose existence this deal now confirms Swiss banks are aware, in the process confirming their complicty in the tax crime their clients have committeed.
2) Despite the very obvious fact that these banks have worked for decades to undermine UK tax collection we now grant them the sole right to assess and collect UK tax on these UK resident people. It would seem they are now even going to collect inheritance tax for us. I, candidly, do not trust them to do this and do not believe they will. They will do all they can to assist their clients get round their obligations - and marketing schemes to assist them to do so will be big business in Geneva right now.
3) The result is that anyone with illicit funds can now place them in a Swiss bank, pay tax on the income then arising on those funds in Switzerland and not actually declare that income arising in the UK - because the Swiss payment will completely cancel all obligation to declare the income at all in the UK - and in that way have the perfect mechanism for not just avoidance but evasion of tax on the original sum deposited.
I know of no other case where a person who is UK resident and with an obligation to make a tax return here on their income may suffer tax withholding abroad (and at lower rates than the UK charges at that) with us paying 25% of the tax to that foreign corrupt government that pays us that tax to reward them for operating an openly criminal banking system where as a result the UK resident is under no obligation at all to refer to that income on their tax return and can yet claim it to be complete, quite legally.
This is grand corruption in the UK tax system, let alone in the Swiss one. It is a licence to permit tax evasion to take place. It is an open invitation to anyone to permit tax crime. And a permanent secretary of the UK civil service - OK, Dave Hartnett, whose reputation is so tattered it is beyond redemption - signed it with the express permission of George Osborne.
One has to hope that the EU objects. But what a sorry state we have reached where the UK's H M Revenue & Customs is now actively promoting arrangements embracing tax evasion where no disclosure to them occurs and yet describes them as legal. Every honest person in this country musty surely be revolted.
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[…] to do justice to this monstrosity, but Richard Murphy has covered some of the points I’d make here. As he notes: This is grand corruption in the UK tax […]
The EU has no more basis to object to this. In fact, the press release has been issued on the day that the Swiss finance and foreign affairs ministers are visiting Brussels, and almost exactly at the hour when they were due to visit the Commissar in charge. That is game, set and match.
We are now waiting for Mark Morris’ explanation of where his analysis went wrong. That will be some debrief….
Alien,
If EU Commission lets this legal sleight of hand stand, then I’ll eat my hat.
So keep that champagne on ice.
Kinda like the parties that went around when the Rubik was first initialled. The fizz left rather quickly. LoL
Alien
Actually I’m chuffed the EUSD and its future amendments will now be responsible for withholding tax on interest. (and Gawd knows what revisions 3, 4, 5 … will be. LoL)
The definition of interest is quickly expanding to include many capital gains but MOSTLY the EUSD is not full of blatant loopholes that even Forest Gump would use.
So put the Dom on ice and rather drown your sorrows in beer & pretzels. Discretionary trusts, foundations, sham commercial entities and offshore wrappers will be in scope… even if you do go retire on the Algarve… and I can tell you, revision two of the EUSD already in pipeline, really gonna wipe the smirk off many tax planners’ mugs.
Mark,
You still don’t get it, do you? There is nothing that the Commission can do. The EU/Swiss Agreement of 2004 mirrored some, but crucially not all the terms of the ESTD itself. One crucial difference was that the withholding tax under the EU/Swiss agreement was always intended to be PERMANENT. Switzerland never agreed to build into the agreement, under any conditions, a commitment to move to automatic exchange.
You don’t believe that the timing of the release was an accident, do you? It is the UK telling Semeta a major “f****k you”, and rightly so. It’s done.
Mark,
I don’t want you to get the wrong impression here. I actually am in favor of the ESTD amendments and I think they will make a real difference in terms of the efficiency of the scheme.
What I object to is the Commission’s drive to impose automatic exchange on members states, or even more so on non-member states. The Commission has no legitimacy in attempting to impose this.
I would like to recommend a little dose of humility here. Before we start celebrating the second revision of the ESTD, should we not wait for the ink to dry on the Luxemburgisch translation of the initial amendments.
What type of heat are you planning to eat? I would like to imagine you cracking your teeth on a ski helmet.
Some of us think those who oppose automatic information exchange support crime
With good reason
Mark
It won’t happen for so long as a Conservative government/Coalition remains in power.
[…] 3) What the wealthy hide offshore – now legally permissible thanks to this government in Switzerland […]
Mark,
It is difficult to resist the temptation of rubbing this one in your face. You have spent the last few months writing in a colorful, often confrontational way, that Rubik would fail as a result of the EU Commission’s intervention. Well, Rubik is going through WITH its interest component. You were wrong and I hope you will be gracious enough to leave on your web page all these wonderful cartoons and statements, including the recent one that said that it would be ludicrous for the UK to introduce domestic legislation to deal with the interest element of Rubik. Really?
More seriously, you and your friends at the Commission will have to assess the best way forward. The situation for the Commission is a disaster: had the it had a couple of functioning brain-cells, it would have used Rubik as the basis to engage with Switzerland on a wider pan-European agreement around cross-border taxation. Instead, it chose to position itself against the will of two of the largest Member States. Far from regaining influence over the negotiation, it has been marginalised. There is now a template for Rubik, and when Italy and Sweden start negotiating their own agreement with Switzerland, they will not involve the Commission.
The only good news is that Rubik is not, legally speaking, incompatible with the ESTD or its amendments. But the bad news is that Semeta’s team does not have any friends left in Europe to help create the political momentum to deliver the amendments. The entire German-speaking block within the EU and outside thinks that Semeta should go.
The Uk has embraced tax crime. And you’re asking Mark to apoloigise for opposing them doing so?
You show the typical pro-crime stance of the so called fiancé professional that brings you and that profession into disrepute.
Mark’s apposition to this has been justified, principled and right – and there’s no doubt the EU will still be looking at ways to block the UK’s scurrilous actions
Hi Darren,
Boy I’m glad you appeared from under the rock.
I can’t tell you what a win it is for the EU Commission that the EU Savings Tax Directive and all its future amendments (every three years) will be the responsible legislation for withholding tax. That means no loopholes! So settlors of trusts and founders of foundations will be deemed the beneficial owner instead of the pathetic “affected person” defined by Rubik. Non Swiss insurance policies in scope, commercial purpose untaxed entities in scope, etc, etc.
Plus the EUSD keeps expanding its scope of what is regarded as interest, ie all gains of structured products, all gains in swaps, all gains in insurance benefits if > 25% interest, etc. And when these thresholds dropped to 25%, even more capital gains will be in scope as being regarded as interest. Additionally if the UK resident moves to Spain, he will still be in scope of EUSD. I can tell you as EUSD expands in scope over the years, it will eat into Rubik like a cancer until its just a hollow shell. Plus moves on Singapore in pipeline (hint – think Permanent Establishments etc), even if Singapore doesn’t agree. LoL.
Darren, what you don’t seem to get is that I was NEVER EVER a proponent of automatic exchange of information. That’s a TJN obsession. I just wanted to ensure loopholes are closed, and Rubik was Swiss cheese x 10. So now we have EUSD plus loophole riddled Rubik. I would have been satisfied just with EUSD. I was upset that Rubik would determine who the beneficial owner is, which companies are taxed etc. Also upset it didnt even consider the Paying Agent Upon Receipt (viz you) concept. So for me, EUSD prevailing over Rubik is dandy.
Other Rubik loopholes that won’t work are sham entities that purport to have a “commercial purpose” such as a Hong Kong Company that drop ships Amazon orders to your sister-in-law twice a year or gives consulting invoices to their Uncle for help in setting up a Facebook page, will be exempt from Rubik but not EUSD. Luxembourg insurance wrappers with Swiss bank accounts escape Rubik but not EUSD amendments.
And closer to home for you, Jersey trusts managed by rubber stampers in Singapore will be in scope. So your statement “The only good news is that Rubik is not, legally speaking, incompatible with the ESTD or its amendments.” is hogwash. The Rubik has nothing to do with EUSD, which will determine by itself what is interest, who the paying agents are and more importantly who the paying agents upon receipt are and most critically who the beneficial owner is. These all differ radically between Rubik and EUSD.
This statement “But the bad news is that Semeta’s team does not have any friends left in Europe to help create the political momentum to deliver the amendments. The entire German-speaking block within the EU and outside thinks that Semeta should go” was obviously concocted in a Dutch coffee shop on a late Saturday evening, so we won’t comment. Its ECOFIN now driving the bus, not EU Commission. LoL.
Mark,
Of course it is a major victory for the EU Commission. That is why Barroso and Semeta were running victory laps around Brussels after their press conference with Widmer Schlumpf yesterday.
And of course the ESTD amendments will be passed without problem at ECOFIN, because Luxembourg and Austria have suddenly decided to abandon centruty-long traditions of banking confidentiality.
And yes, future revisions of the ESTD will take place every 3 years. Only this one took 6 years and counting, but the EU is generally very good at complying with pre-agreed deadlines.
So well done to the Commission for all its hard work to date, and no doubt for all its future achievements.
Can we go back to reality now?
Darren
How could you even support the loophole riddled Rubik for 5 minutes. It was written by a bunch of morons. What’s even more egregious is you touting the shitepile Rubik as a foundation for tax agreements with all EU. Man, that’s funnier than any cartoon I can do.
By the way, the whole purpose of Rubik was to get away from the EUSD… and now we have EUSD plus Rubik. So why is that a win for Swiss. Let’s see how many Rubik partner residents keep their bank accounts in Switzerland. They now get caught by EUSD amendments plus pay hefty Rubik taxes if they’re muppets.
Mark, you write that the whole purpose of Rubik was to move away from the ESTD. That is not correct: the main objective was to deflect the demands for automatic exchange of information. Switzerland could, like in the old days, just have told the EU to get lost, and the matter would have ended there. Instead it turned the situation to its advantage and came up with the original idea for Rubik, and scored a real political coup.
The rest of your analysis (here and on your site) relies on the assumption(s) that (1) the EU will implement the amendments to the EUSD, and (2) that Switzerland will also agree to take (most of) these amendments on board.
Well, regarding (1) you still have the small issue of getting AT, LU and now GE on board, and regarding (2) you have the problem that Swiss negotiators could usually eat their EU counterparts for breakfast.
Good luck.
Alien
The reason I was initially perturbed over Rubik is that it tried to take over the responsibility of taxing interest from the EUSD. Where Rubik went wrong was to assume EUSD only deals with the definition of interest. So Rubik was going to to define the Beneficial Owner and who the Paying Agent is. That process introduced the ten loopholes enumerated by TJN. For instance Rubik exempts discretionary trusts, commercial offshore companies, etc. I personally couldn’t give two hoots on the EC’s long-term goal of automatic exchange of info.
So on Tuesday CH-UK trumpets out that they have omitted interest, leaving it up to EUSD. Well then, there goes Rubik’s loopholes out the window. CH officials who kept repeating that EUSD was embedded in the Rubik were ill informed muppets, who never understood the EUSD changes.
So the CH moron who proudly announced on Tuesday that nothing changes for the client as only the legal method changes is a pons. EUSD being responsible for tax on interest instead of Rubik is a big change for the client. EUSD will now define who teh Beneficial owner is and who the paying agent is (eg trustees)
Furthermore, as you know, the EUSD will be revised every three years and so I can guarantee you that the definition of interest will widen each time to include capital gains and other income, even dividends e.g. look at how EUSD deems all of insurance benefits as insurance even if its mostly capital gains and dividends, and look how all gains on structured products and some other derivatives is regarded as interest.
So that’s what I mean when I say EUSD will grow like a cancer into the Rubik, eating its area of responsibility away until its a hollow shell. But the obtuse muppets trumpeting Rubik’s “win” don’t realise that.
Actually Alien, now tell me clearly here. What did CH achieve with Rubik? You say to deflect automatic exchange of info . Yet on the other hand you keep saying CH never agreed to auto exchage. So what is the purpose of Rubik? I didn’t hear UK clamouring for AEI before Rubik.
This was the quintessential example of a country shooting itself in the foot. Its going to impose nearly 50% tax on non residents for what purpose? Even UK said it can’t see CH giving up Swiss banking secrecy for a decade or longer.
Already UK fleeing to the LDF, so again CH gains nothing.
Morons, mate.
Mark,
Your analysis is interesting, although it is spoilt by some of the language.
But you continue to make some heroic assumptions to get to your conclusions. One is that the current amendments will be passed without some serious dilution. It is possible, even likely that most of the substantive amendments will go through, but don’t believe it until the ink is dry.
Another assumption is that Switzerland will take on all the same amendments. It is also possible that this happens, but the odds are slightly longer. Remember that Switzerland has so far barely been consulted. Since there are no such things as trusts and other “sham” arrangements under Swiss law, it is possible that the Swiss won’t feel too badly affected.
But where you really make a massive leap is to assume that Switzerland, which as once had to be explained to you is not part of the EU and therefore NOT a prty to the EUSD, will agree to 3-year revisions of its agreements with the EU (assuming that the EU itself sticks to this schedule). The only thing that is certain is that this will be a convoluted process, and one which the EU has an abysmal track record at managing.
So good luck with all this. It is good news for you because it keeps you in a job for the next few years.
Mark,
Again to prevent you and Murphy from getting the wrong impression, I hope that the EU succeeds in implementing the EUSD amendments. That would become much easier if the Commission dropped the demands for AT and LU to move to automatic exchange, something neither state is ever likely to accept. Surely there must be a compromise involving a higher withholding tax that all parties could agree to.
With respect to Switzerland, the door has been left open to do a deal, either within the framework of the EUSD amendments or through a separate treaty. If the Commission puts its A team on the case, it should be doable.
Daren,
I thought you were an avid follower of my website? Seems you misunderstand the root cause of delay in EUSD amendments.
LU / AT, nor any other MS are opposed to the EUSD technical improvements at all. If you can find ONE sentence supporting that trustee inspired myth anywhere of the web, even on right wing nut blogs, then I’ll eat my ski helmet live on Skype for you. At least Alien understands it is the request by EC to get a combined mandate from ECOFIN to discuss with Switzerland / Liechtenstein / Andorra / San Marino / Monoco both the exchange on demand AND technical improvements. It’s the exchange on demand that LU / AT do not want to proceed because then that will end the EUSD transitional period. That has nothing to do with EUSD technocal amendments. Once that combined request is separated or agreed, then improvements to EUSD will go ahead every three years without delay. Have a look at the 60-page EUSD amendments, not a single word refers to automatic exchange of info. That’s all covered in the original EUSD from 2003. It says when the 5 countries agree to exchange of information on demand, then LU / AT temporary transitional period ends. That’s got dick-all to do with EUSD amendments. LoL.
BTW, Luxembourg’s century-old secrecy? Less than 30 years old, more like it.
Darren, face it, tax sneak-facilitators like you are dinosaurs and the meteor has already entered the atmosphere.
Mark,
I understand very well the positions of Luxembourg and Austria.
Let me get this straight though: the current amendments, which everybody agrees with in substance have been stuck for 5 years with no resolution in sight.
And yet, you are saying that future revisions, which member states are unlikley to agree on, will be accepted every 3 years.
Keep digging Mark.
Ed note: the following has been allowed but I think a little moderation in language may be of benefit
Darren,
You are the definitive of someone who is obtuse.
Which part of “LU / AT do not oppose the technical revisions of the EUSD” do you not understand? I asked you to quote one line from ANYWHERE on the web to support that ludicrous inane supposition. I even offered to eat my ski helmet live on skype…
And how do you reply? …there is no resolution to the exchange of information issue in sight. LoL
Well let me explain in simple words… Once the mandate request to the EU Council by the EC to approach CH / LI / MC / AN/ SM separates the combined issues of (a) exchange on demand negotiation, and (b) technical improvements of the EUSD, then the technical revisions to the EUSD every three years will sail through… and this separation is not far away as ECOFIN working party recommended this last year. Sheesh man, that’s simple to understand.
If anyone needs to keep digging it should be trustees on Jersey who will need to pick cockles for a living in future.
Mark,
I did not write that there is no resolution in sight to the exchange of information issue. I wrote that there is no resolution in sight to the issue of the amendments as a whole. The last time I checked Austria, Luxembourg, Italy and now even Germany were taking turns to block it. They have different reasons for doing so, none of which are directly related to the technical amendments themselves (I never said they were), but rather to various domestic and international political games.
To which you make the bizarre point that: “Once the mandate request to the EU Council by the EC to approach CH / LI / MC / AN/ SM separates the combined issues of (a) exchange on demand negotiation, and (b) technical improvements of the EUSD, then the technical revisions to the EUSD every three years will sail through… and this separation is not far away as ECOFIN working party recommended this last year”.
Well Mark, the question really begs itself: if it were all so easy, why has it NOT happened? Please explain why the Commission does NOT have that mandate.
The recommendation by ECOFIN’s working group was made last year,which was 4 years into the amendment process. And 12 months on, it looks like neither the Commission nor the ECOFIN presidency have read this memo. Having gone through Murphy’s archive, I have noticed that it was almost at the same time last year that you first predicted that the EUSD amendments would be passed within a couple of months or so. Well, that was a little off, wasn’t it? On the basis of that sobering experience, you should at least have learnt that the EU is a world beater at screwing up its own legislative timetables. It looks very foolish to GUARANTEE that the EU can deliver anything (except chaos of course).
I have a genuine question though: even if you assume that the EU can against all odds get its act together (I know it is difficult to imagine, but let’s try) and get on a schedule of revisions every 3 years, how are you planning to deal with the third-party countries? Seriously, every round of revisions will require the Commission to obtain a mandate from member states, and then to negotiate the amendments with the non-EU nations, at which point the Swiss negotiators regularly take the EU to the cleaners.
What is the magic formula that GUARANTEES that this will happen as smoothly as you describe it.