The Government’s most senior tax official has told the Chartered Institute of Taxation (CIOT) that the new information power within the agreement will make it easier for HMRC to identify those who in the future try to hide money in Switzerland.
In an interview for the CIOT website about the recent UK-Switzerland tax deal, Dave Hartnett, Permanent Secretary for Tax, explains that the UK and Swiss governments have agreed a ‘ratchet’ deal where the more successful HMRC is in identifying people who owe tax on their Swiss accounts, the more people the taxman will be able to search for in future.
In the interview, Dave Hartnett also says:
- HMRC believes that only one in five UK residents with a Swiss investment is not tax dodging
- The Government expects to make £4-7 billion from the Swiss tax deal
- Those involved in organised crime – including tax crime – whose proceeds are scooped up from Swiss accounts will still face prosecution if they can be identified
- The agreement will contain specific arrangements for non-doms but HMRC are going to prioritise any who are ‘not straightforward’ about their tax affairs for criminal investigation
- HMRC believes there is no chance of getting rid of Swiss banking secrecy, for the next 10 years at least
- Information from the Swiss about where UK residents are shifting their accounts to will determine where the Government targets next
- The ‘hiding places are disappearing’ for those trying to conceal money offshore
The CIOT has released a podcast of the interview in which questions were put to Mr Hartnett and Gary Ashford, National Head of Tax Investigations and Dispute Resolution at RSM Tenon and a member of the CIOT Council by John Whiting, CIOT Tax Policy Director.
In the interview, Dave Hartnett characterises the options facing UK residents with Swiss bank accounts as “suffer the withholding”, “make a disclosure to HMRC” either directly or through the Liechtenstein Disclosure Facility, or to “go to hell”, which he says is his Swiss opposite number’s phrase for moving money to another, generally dodgier, location.
He also reassures those holding insurance investments in Switzerland that these will not be subject to the proposed withholding tax, though banking assets held in an insurance wrapper will be targeted.
Commenting, Gary Ashford said: “We expect the sign off and publication of the agreement with Switzerland in the coming weeks. This is clearly the most significant step to date in HMRC negotiating agreements with offshore financial centres, which will ultimately lead to them identifying many UK citizens with assets in Switzerland or, where they prefer anonymity, at least the assurance of a contribution towards the tax gap by way of a withholding tax. We are entering a new chapter in the area of international tax compliance.”
The CIOT podcast on the Swiss tax deal can be heard in full at: http://www.tax.org.uk/media_centre/Podcasts/Synopsis/UK-Switzerland+tax+deal+with+HMRC
Extracts from the question and answer session
(DH: Dave Hartnett, GA: Gary Ashford, JW: John Whiting)
On the accusation that the Swiss deal ‘lets fraudsters off’
DH: Well, there are principally two responses here, John. The first is, I don't think it does let fraudsters off, because we weren't going to catch them anyway, particularly tax fraudsters. We don't know who they are. We don't know what they've done. We don't think banking secrecy will disappear in Switzerland at any time in the foreseeable future, certainly not in the next 10 years. So what we are doing is collecting back taxes from people who we couldn't identify. And at a time when our nation has a deficit it seemed like a very sensible thing to be doing. But not everyone who has committed some sort of money crime will be able to benefit from withholding. Those who have been in organised crime, organised tax crime like carousel fraud, may well have money taken from them, but it will be regarded as a payment on account rather than creating finality.
JW: This opens up the possibility of a real investigation...
DH: Absolutely. Another serious money crime that doesn't involve tax, where money is taken, we will regard that as a payment on account of tax and not creating finality as well. These are important exceptions.
The options facing those with untaxed money in Swiss bank accounts
DH: Broadly people have three options - people who've secreted untaxed monies in Switzerland. They suffer the withholding. They make a disclosure to HMRC and, as Gary says, there are broadly two routes at the moment to disclosure: one is a direct disclosure to my department; the other is they might choose to make a disclosure through the Liechtenstein Disclosure Facility. And as my opposite number in Switzerland is fond of saying, the other [the third option] is they can 'go to hell'. And 'go to hell' means taking your money out of Switzerland and taking it somewhere else. But the world is becoming a smaller place. And one of the lesser known aspects of this agreement is that the Swiss will be supplying the UK with details of the top 10 destinations where funds leave Switzerland, and that will help us target our next initiatives.
Treatment of non-doms
DH: For someone resident in the United Kingdom, not domiciled here, who pays their tax on a remittance basis, there will not necessarily be withholding. Withholding is disapplied, but an individual in that position can opt into withholding. Our experience of offshore investigations in recent years is that there are quite large numbers of non-domiciled individuals but who are actually resident in the United Kingdom who do owe tax in relation to the money they have held offshore. It was really important for us to make sure that there wasn't a loophole for non-domiciled individuals here. So one of the things that we made clear when negotiating the agreement is that if non-domiciled individuals are not straightforward with us in relation to their tax affairs we will prioritise criminal investigations of people in that position. It is just important that people know where they stand.
Advice for those with Swiss bank accounts who have paid their tax
JW: There are plenty of innocent people who have got entirely legitimate funds in Switzerland, who have been declaring the income perfectly properly. Now they are going to just have to take some action and make sure that proper disclosures are made to avoid actually suddenly finding that they are losing a swatch of their income and 48% withholding. Any particular advice for them?
DH: I think the advice is the same as ever: that disclosure is always the right answer. If they have been honest in their dealings with us we will confirm to them that we know all about them, and Swiss banks will then not apply withholding to them.
JW: So there's a bit of mechanics that they will have to go through.
DH: Yes. I think there's a really important issue here as well though John, and that is that Swiss banks, and we, looking at this situation of potentially innocent people, think that they are relatively small in number - maybe no more than 20% of UK residents investing in Switzerland. But if anyone does suffer withholding when they shouldn't have suffered withholding, it will be repaid to them.
On the provision of guidance and treatment of offshore life bonds
GA: Clearly as the agreement is published and any supporting guidance is provided, all those, both tax advisers in the UK, and in Switzerland for that matter, will be poring over detail and trying to apply that detail to specific circumstances. I think we look forward to the agreement. Do you perceiving HMRC providing some guidance to support the agreement, Dave?
DH: I think we will provide guidance if it's needed. The agreement is quite substantial and quite detailed. John, you mentioned offshore life bonds. We've a basic principle here which is important and that is where banking assets are held in an insurance wrapper they are caught, but pure insurance investments are not caught. And if we have to provide more guidance on that and similar issues we will do so.
Information powers in the deal subject to a ‘ratchet’
JW: Can we just turn briefly to the information power you get out of this – this idea that 500 names, you can go to Swiss banks and just ask for more details – you’ve already alluded to your general pursuit. Anything more you can tell us about this?
DH: Yes. I think it's important to realise that the United Kingdom and Switzerland made a change in the double taxation agreement at the beginning of this year, and that is, the article 26 of the standard double taxation agreement, which provides for exchange of information on request, applies for Switzerland, so that, if you were investing in Switzerland, and we had reason to be worried about that, we could ask the Swiss what they know about you, but in a specific context. What this extended provision will do is that, in future, if we needed to ask about you, the Swiss will search their banking system - the whole banking system - and provide us with everything they actually know about you, so we would get a lot more information. There's a novelty with this provision as well, and that is that the more successful HMRC is in identifying people who have additional tax liability to pay, the greater the number of people we will be able to search for. The 500 raises like a ratchet. And if we are hopeless at identifying people who have hidden the money the 500 will come down.
Deal expected to yield £4-7 billion
DH: It's very difficult to be precise. The expectation is somewhere in the range four to seven billion pounds.
JW: As an absolute amount, or annual yield?
DH: I don't think it will be an annual yield.
JW: That's too optimistic!
DH: That is rather optimistic. But it's worth saying that we've come at this number in three different ways. The Swiss Banking Association got a big four firm to carry out an assurance process over the Swiss Banking Association's estimate of the amount, and we were party to that arrangement. And that brought out a number in that range. Our analysts in HMRC carried out an exercise and they ended up in that range too. And then we asked other specialists, external to HMRC, to look at it for us, and they were slightly above the range. So that gives us some assurance, I think, that four to seven billion is the right range, and there's been a lot of speculation in the media that five billion is the number. No-one knows what the number will really be because you'd have to examine every single bank account with full knowledge of every investor, but it's in the range.
The ‘hiding places’ are disappearing
JW: Dave, is that a fair summary: no hiding place.
DH: John, I think it is. It might take us a little bit longer to get to an absolute position of no hiding place, but the hiding places are disappearing. And I think investors really do need to think very carefully, because the hiding places that are disappearing are the ones that people thought were very secure, and the ones that... what's a good word for it... the ones that are a bit dodgy are the ones that are left.
30 Septemberr 2011