Amendments to Swiss Tax Agreement

June 29, 2012 by  Filed under: Taxes 

The UK-Switzerland Tax Agreement was signed on 6 October 2011. The legislation to put it into effect is in the 2012 Finance Bill; which should get Royal Assent (and become law) in July this year, and come into force in January 2013. On 20 March 2012 the UK and Switzerland signed a “protocol” to the STA to deal with the EU Savings Agreement and with Inheritance Tax on the death of a UK resident Swiss bank account-holder.

The Swiss Tax Agreement gives UK resident taxpayers, with bank accounts in Switzerland for which they have not declared income and gains, an alternative (but generally expensive) method to clean up their UK tax affairs. Taxpayers can have the arrears on their Swiss income settled, and keep their anonymity, by having a large one-off sum (calculated by reference to holdings in December 2010) deducted by the Swiss bank from the balance in the account in 2013. The money will be passed over to Her Majesty’s Revenue & Customs in the UK. Once the initial lump sum payment is made, taxpayers face having to either make an annual disclosure (and lose anonymity) or pay an annual withholding tax at 49% of the income or gains.

Alternatively, the taxpayer can disclose the Swiss account, and related income and gains, to the taxman, and have their tax arrears calculated in the usual way, plus paying interest and penalties. Any such disclosure will inevitably lead to a tax enquiry in the UK. Most of these ‘voluntary disclosures’ will be handled under Her Majesty’s Revenue & Customs Contractual Disclosure Facility, under the terms of Her Majesty’s Revenue & Customs Code of Practice 9: these tax investigations will either be handled by the taxman’s Local Compliance Fraud unit for the elite Specialist Investigations team.

As a third alternative most Swiss bank account holders will be entitled to use the confusingly named, but usually highly beneficial, Liechtenstein Disclosure Facility. That will limit the number of years for which the taxman can collect tax, interest and penalties; guarantee non-prosecution; and it also offers a highly beneficial fixed penalty of 10% of tax: compared to a maximum 200% which Her Majesty’s Revenue & Customs can claim where offshore bank accounts are concerned.

The protocol of 20 March 2012 amends the Swiss Tax Agreement (STA) as follows:

• Where a person has suffered Withholding Tax under the EU Savings Agreement, a further 13% “tax finality payment” will be payable to obtain clearance under the terms of the STA.
• A new Inheritance Tax levy will be imposed on the death of the Swiss bank account holder, unless their personal representatives authorise the Swiss bank to disclose the account details to Her Majesty’s Revenue & Customs in the UK. Obviously, any such disclosure will lead to a tax investigation in the UK. This could be particularly stressful for grieving relatives.

What does this mean for me?
If you, or a relative or client, have a bank account in Switzerland then you need to make a decision in the very near future as to how to proceed. In the absence of any positive decision the account will suffer a large one-off deduction and then will also suffer from a substantial tax deduction going forward. There are a number of matters to take into account; and on occasions the deductions under the Swiss Tax Agreement may be the cheapest option. However, generally speaking an alternative disclosure to Her Majesty’s Revenue & Customs will be more beneficial. In most instances a disclosure under the Liechtenstein Disclosure Facility will be the option which gives the optimum outcome. However, there are a number of complex issues to take into account and specialist advice is required.

Paul has over 24 years’ full time experience of tax enquiry work.
Paul is a highly skilled tax professional. He is adept at uncovering HMRC’s key concerns, getting them to focus on the material issues and moving cases to speedier resolutions for the benefit of his clients.
Paul lectures regularly to professional bodies and is also a Consultant to the ICAEW’s Tax Faculty referral scheme for members; specialising in Tax Appeals, Enquiries and Serious Tax Investigations.

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