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Tax Experts Unconvinced Over UK-Swiss Tax Deal
While the government has hailed the UK's landmark tax deal with Switzerland, experts have warned that the agreement could lead to people simply moving their assets elsewhere.
The deal, initialed on August 24, permits UK residents to retrospectively tax existing bank relationships in Switzerland, either by making a one-off tax payment or by offering a full disclosure of their banking affairs to UK authorities. Depending on the assets in question, the duration of the client-bank relationship and the initial and final amount of capital held in the account, tax will be charged at between 19% and 34%, for periods prior to January 1, 2013. After this date, the investment income and capital gains of UK bank clients in Switzerland will be subject to a final withholding tax, charged at 48% on investment income and 27% on capital gains.
In spite of both the government's enthusiasm for the deal and broad praise for its completion, tax experts are warning that it could tempt banking clients to think twice about their relationships with Switzerland. Gary Ashford, who represents the Chartered Institute of Taxation on the Compliance Reform Forum, said that, with a high rate of withholding tax, "there is clearly a risk that account holders will move their money to even more distant and inaccessible locations, which is in neither government's interests. Swiss banks and HMRC alike will be hoping that this has all been pitched at the right level".
In particular, Liechtenstein could become a focus for those affected by the agreement. The UK already holds a disclosure agreement with Liechtenstein, which provides for a disclosure facility (the LDF) allowing those with unpaid tax linked to investments or assets in Liechtenstein to settle their tax liability with the UK. Such taxpayers need only disclose information relating to the period from April 1999 - a key issue, according to Chris Oates, head of the Tax Controversy team at Ernst & Young. Oates says one side effect of the Swiss deal could be an increase in the movement of assets to Liechtenstein. As he pointed out, the Swiss agreement requires a back payment on the total value of assets held. As a result, the LDF "could prove a more cost effective way to resolve past tax liabilities for all UK individuals than the new Swiss arrangements".
Stephen Camm, tax partner at PwC added that: “We conclude that the LDF is a better deal for UK taxpayers coming clean than the UK/Swiss treaty is likely to be, although taxpayers have to give up secrecy under LDF which they are not required to do under the UK/Swiss deal. Our sample shows total liabilities under LDF are, on average, around 10% of overseas account balances in 2009/10."
There appears to be some confusion over the status of non-domiciled UK residents with regard to the withholding tax, but according to Withers, the agreement will not apply to non-doms. "One consequence of this will presumably be that the banks will have to establish which of their UK resident account holders are not domiciled in the UK, as the one-off deduction for past liabilities does not apply to them," the law firm stated in a paper on the agreement.
Quelle: Tax-News.com
