Amongst the outcomes of yesterday's Public Accounts Committee hearing in which HMRC were interviewed about their performance was the revalation that the UK - Swiss tax deal that was scheduled to pay the UK £3.1 billion this year may not deliver a quarter of that sum.
I am not surprised. I have been arguing vociferously against this deal since it was first announced. One of the most forensic analyses came from my then colleagues in the Tax Justice Network. The argument was not that this deal would raise money but that it could easily, and for a variety of reasons, create tax leakage from the UK. I still think that may be true.
The EU slammed the deal as supporting tax haven abuse.
Amongst the staggering impacts of the deal was a restriction imposed on the UK's right to criminally investigate those who had been tax evading via Swiss banks.
Unbelievably, those still using Swiss banks were given favourable tax rates under the deal.
And it became legal for the first time to not declare tax haven income on a UK tax return and still claim it was complete.
And parts of UK tax administration were, under the deal, handed over to Swiss banks to operate as if we could wholly trust their unsupervised best attention to making sure everything was done in right order.
From day one I named this deal as naive and a deliberate act by the UK to undermine the European war on tax haven abuse. I argued the Swiss could not be trusted to deliver (as is now clearly proven to the case) and that the UK's rule of law was undermined by allowing Swiss banks to operate parts of the UK tax system - with a tax rate discount applied to encourage abuse in the future. And I and others argued that this deal could not deliver the sums claimed for it.
We have been proven right, yet again. No wonder Margaret Hodge said it was time for HMRC to listen to the tax campaigners yesterday. Our ability to predict tax risk seems to be 100 times better than that of HMRC.
That however leads to the next obvious question, which is whether HMRC were wilfully blind on this issue, as I suggested many times in 2011 and 2012 when referring to this issue, or were just incompetent. I'd like to believe the latter. I remain to be convinced.
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Richard,
On the Swiss deal the Swiss banks themselves have pointed out that the majority of money held in the banks by UK citizens was held by two groups.
1) Non-doms who do not owe tax on foreign earnings held outside the UK.
2) Non-residents who do not owe UK tax on their earnings.
As I understand it the higher estimates of how much cash there was, that £40 billion, includes these sums which are not UK taxable. The lower sums reported by the Swiss banks include only those sums which are righteously taxable.
If this is true (and it is what the Swiss have said themselves) then surely the original mistake was in the claim that there was £40 billion evading tax? Not in the process by which it would be taxed, but in the fact that it is not actually taxable in the first place?
You have no idea that’s true
It’s just your make believe
And you know it
That is what the Swiss are saying though. And at that point isn’t it incumbent upon those who made the original claim, that £40 billion, to counter the point?
I can’t recall whether it was you, Brooks, TJN, Shaxson, who made that original claim but whoever it was it really is their job to come back with a counter to the Swiss claim.
HMRC
They made it
I challenged how much hey would get as a result
Read the links in the blog Tim and stop making a fool of yourself
Tim,
Is it really your contention that wealthy customers of Swiss banks don’t use trusts, foundations or insurance wrappers???? At least the German Parliament was savvy enough to recognised the loopholes before rejecting the Rubik deal.
http://www.bundestag.de/bundestag/ausschuesse17/a07/anhoerungen/2012/098/Stellungnahmen/14_-_Mark_Morris.pdf
Mr Morris,
It appears from overnight reports that Germany will re-start negotiations with Switzerland about a tax agreement (http://reut.rs/1gcOQkY), as will Italy.
At the same time, there has been no progress on a EU-led solution, with both Luxembourg and Austria unwilling to sign up, and the Commission weakened and distracted by its defeat on the Financial Transactions Tax.
What are your thoughts? Thank you.
The agreement is failing in the UK
Germany us heading for an FTT
Rumours on Switzerland are just that
Dear MRubio
CH is trying to barter access to EU for automatic exchange. EU has mandate to negotiate only the extention of EUSD so CH will get nothing in return, just like they collapsed against USA. Things are moving fast.
http://translate.google.ch/translate?sl=de&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&u=http%3A%2F%2Fwww.cash.ch%2Fnews%2Falle%2Fchwidmerschlumpf_trifft_eukommissar_wegen_zutritt_zu_eufinanzmarkt-3132497-448
Mr Morris,
Thank you for your thoughts.
It is disingenuous to compare Switzerland’s negotiations with the United States and with the EU. The United States are the world’s dominant economy, home of its reserve currency and has a result has unlimited leverage over Switzerland. The EU, as a largely failing economic entity, without a unified currency simply does not have any meaningful common economic pressure points.
More importantly, unlike the DOJ the EU Commission does not have the authority to indict and prosecute individual Swiss banks, bankers or associated institutions and individuals. This would be the exclusive prerogative of the member states’ public attorneys. France is currently pursuing UBS, and you can observe first-hand that Switzerland is rather relaxed (to say the least) about it.
The Swiss are perfectly aware that Luxembourg (and Austria) will not sign up to any new tax agreement unless Switzerland enters the same agreement, and that surely considerably weakens the Commission’s mandate. One could be forgiven for getting the impression that the negotiations are currently taking place on Switzerland’s terms, not the Commisssion’s.
Thank you again.
MRubio
Funny thing is despite your astute observations over the past three years, the wheel keeps turning against CH. You opined LU would never convert to AEI. You said EU Commission would not get a mandate to negotiate EUSD. You postulated the CH version of FATCA was not equivalent to AEI.
Now CH says it is ready to negotiate EUSD and AEI. The writing is on the wall, set in concrete, the deal is done, the fat lady has sung, Elvis has left the building, it’s all over bar the shouting. Now all that’s left is to dot the i’s and cross the t’s.
You’re right Mark
But the head in the sand brigade have not taken them out yet
I have always suspected that the expected tax take was grossly over-stated.
With such generous settlement terms, why would people have not taken advantage of it? They will have been fully aware that the net was closing in on them. The logical conclusion must be that many account holders simply don’t need to use the facility as the income from their accounts is just not taxable in the first place.
All evidence does seem to point to this. The average account size of the 5,000-odd people who have used the disclosure facility is just £183,000.
Or that the income was hidden behind trusts and other arrangements
Shall we get real?
The Swiss/UK Disclosure Facility was aimed at enabling UK residents with undeclared funds to “come clean”.
If they have legitimate tax planning structures in place, then no tax was/is being evaded, and so they would have had no need to take advantage of the Facility. They can continue to retain their Swiss accounts and remain tax-compliant.
If they were hiding funds illegally behind structures, they have the opportunity to come clean via the Facility. Why would they not take it up?
People who have legitimate offshore funds surely have no reason to take advantage of a Disclosure Facility which was designed specifically for those with illegitimate funds?
Given what has changed in Switzerland over the past 12-18 months, are there really that many stupid people who will continue to hide illegitimate behind structures, knowing that their chances of being caught have increased 100-fold?
Why would they not take up the facility?
How about because they are tax evaders who want to continue evading and the scheme lets them do so?
Paul,
What is legitimate about having a sham discretionary trust hold your Swiss account. The Rubik agreement specifically states “discretionary arrangements are excluded from this agreement”. The fault lies in the agreement’s loopholes, not with “legitimate planning” structures.
Mark
There is nothing legitimate about using a “sham” discretionary trust. But similarly there is nothing wrong with a non-dom using a fully-compliant non-sham discretionary trust.
If it is fully declared for all taxes
I agree.
But settled by a non-dom UK resident who is paying the annual remittance basis charge? What’s to report until and unless there are any remittances made?
We all know the loopholes in that
What loopholes other than outright evasion?
It is evasion I am worried about
It is meant times bigger a problem than avoidance, even if HMRC deny it
I’m confused. Evasion isn’t a loophole, its a crime. I was referring to fully- compliant offshore discretionary trusts established by UK-resident non-doms. Fully compliant means no evasion. There is a lot of that business in Switzerland, with UK-resident settlors and beneficiaries, with some truly huge trust funds. If no tax is due to the UK on an arising basis, and if there are no remittances, then there is no tax liability, and no evasion taking place.
Sorry – I lost your thread
I do not see the comment you are replying to when moderating
Won’t the hot money simply t have moved out of Switzerland? I haven’t read the agreement in detail but I don’t think that there was anything in it to stop people moving money out of Switzerland between the announcement and the date the tax began to apply.
Insurance wrappers are a red herring generally – you could simply put the cash into an offshore gross roll-up product and bring back 5% each year – the problem will be dodgy cash and I imagine most of that will have moved.
That would mean the original estimate might have been reasonable (had the money stayed in Switzerland). You could only check if you knew how much potentially taxable money has left Switzerland. And I guess that nobody that would tell has that figure.
There were provisions to stop funds moving – and massive evidence that Swiss banks ignored them
I have no idea how HMRC propose to audit this
That they were naive is the only fair conclusion
Perhaps, but at far bigger risk if they subsequently get caught. A tax evader with even half a brain would realise that the risks have risen massively. Surely they would have moved their funds to Hong Kong, Singapore, Dubai, Panama etc if they were so determined to remain undisclosed.
It may of course be that tax is the least of their concerns if the funds in question came from more illicit means.