Swiss veil lifted

The Treasury’s agreement with the Swiss government on offshore banking has real teeth to bite tax evaders. John Greenwood reports

The UK Treasury’s agreement with the Swiss government has been hailed and attacked in equal measure.

Critics have accused the Treasury of caving in to Swiss demands to maintain the secrecy its banks are famous for. But many experts see the agreement as the de facto end of Swiss banking secrecy, at least as far as UK residents are concerned.

The £3bn the Treasury ultimately expects to get from the deal is in a sense the tip of the iceberg. Tax analysts believe the plan will lead to more high net worth individuals being more likely to stay onshore in future. It will see the introduction of a 48 per cent tax on investment income and 27 per cent on gains from 2013.

Under the terms of the agreement, existing funds held by UK taxpayers in Switzerland will be subject to a one-off deduction of between 19 and 34 per cent to settle past tax liabilities, leaving those who have already paid their taxes unaffected. As a gesture of good faith Swiss banks will make an up-front payment from Switzerland to Britain of 500m Swiss Francs.

The Treasury hopes the agreement will resolve the long-standing abuse of Swiss banking secrecy by those who seek to conceal the proceeds of tax evasion and is expected to secure billions of pounds of unpaid tax for the UK exchequer from 2013.

Osborne says: “Tax evasion is wrong at the best of times, but in economic circumstances like this it means that hard-pressed law-abiding taxpayers are forced to pay even more. We will be as tough on the richest who evade tax as on those who cheat on benefits. The days when it was easy to stash the profits of tax evasion in Switzerland are over.”

Provisions buried in the small print that could really make the wealthy think again about going to Switzerland, say experts.

“This agreement means a qualified end to Switzerland’s banking secrecy,” says Mike Warburton, a partner at Grant Thornton. “What few people have reported is the fact that the Treasury has secured the right to disclosure of the identities of 500 people a year they think are breaking UK tax rules.”

Warburton argues this means Switzerland’s banking secrecy is effectively over, as the deterrent effect of being caught will make only the foolhardy or those obeying UK laws take their money there. He is predicting high profile cases being taken by the Revenue.

“We will see some celebrities being done by the Revenue. They will request the details of some pop stars or footballers they think have stashed their cash in Switzerland, and throw the book at them,” says Warburton.

“We will be as tough on the richest who evade tax as on those who cheat on benefits. The days when it was easy to stash the profits of tax evasion in Switzerland are over”

Simon Airey, director of national tax investigations at DLA Piper says: “This is a ground-breaking achievement for the Swiss and UK authorities. It will strengthen Switzerland’s standing as an international financial centre and effectively signals the demise of banking secrecy as a means of concealing tax evasion.

“A lot of the finer details of the deal are not yet known but if it is ratified into Swiss law, its terms will undoubtedly be attractive to those who are prepared to pay a premium to maintain their anonymity.

“For those who wish to make a clean break of things, the Liechtenstein Disclosure Facility (“LDF”) is likely to remain the most cost-effective way of permanently regularising their affairs. People using the LDF typically pay between 10 and 20 per cent of the undeclared overseas assets depending on their circumstances. On the face of it, this is less than the Swiss deal but not everyone will be eligible and it is important for people to take advice in relation to their individual situation.

The agreement is expected to come into force in 2013, following scrutiny by Parliament and after ratification procedures in Switzerland are complete.

Those with undeclared assets in Switzerland need to consider their position in the meantime. Both the LDF and the Swiss deal will not be available to those who are investigated by HMRC in the interim.

DLA Piper points out that under the terms of the deal, HMRC will obtain certain information about the destination of assets that are transferred out of Switzerland so closing accounts in order to avoid the levy is not a risk free option.