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Swiss tax deal divides opinion

It’s not often, in these straitened times, that the Treasury think they can get some good headlines on tax. A reasonably good sign that this is the case is when the Chancellor steps in to front up the story – in the press release at least.

This was the case with last night’s announcement of a deal with Switzerland to tackle evasion by UK taxpayers with money in Swiss bank accounts.

For those who have missed it so far the three main elements of the deal are:

1. UK taxpayers with money in Swiss bank accounts will have to pay a one-off charge of between 19 and 34 per cent of their account balance to the UK taxman in 2013. The payment will be deducted and made by the bank. Details of individual accounts will not be revealed but account holders will get certificates stating they have paid the charge. This levy can be avoided by the taxpayer making a full disclosure to HMRC and settling all taxes.

2. From 2013, a ‘withholding tax’ of 48 per cent of the interest they earn, 40% of dividends, 48% of other income or 27% of capital gains will be deducted automatically by the bank and sent to HMRC annually. Again, details of individual accounts will not be revealed but account holders will get certificates stating they have paid tax on the interest/dividends/capital gains from their deposits.

3. The UK Government will be able to request bank account details for up to 500 people a year from Swiss banks, who will be required to disclose the information.

Whether you regard this as a good deal really depends on whether you think the Government had any prospect of getting a better deal – in particular, whether there was any chance of getting Switzerland to abandon its long-cherished banking secrecy. Most observers, including the CIOT, have taken the view that the deal is a pragmatic trade-off and a significant step forward. Jaimie Kaffash at Accountancy Age calls it “an excellent deal” and an agreement “HMRC can rightly be proud of”.

But at the other end of the spectrum, Richard Murphy of Tax Research UK calls the deal “sickening” and believes “Cameron and Osborne did the Swiss tax deal to support tax evasion - there's no other explanation”. Christian Aid are also heavily critical, calling it “collusion with criminality”. Exchequer Secretary David Gauke has been on the airwaves rebutting these claims, telling the BBC: "There was no prospect of the Swiss abandoning bank secrecy altogether.”

The CIOT is highlighting that it is not just ‘tax dodgers’ who will be affected. Innocent taxpayers who have always properly reported their Swiss income are at risk too. They will need to make a further disclosure to avoid the deduction from their account balance in 2013.

The amounts raised by the deal will turn on one key question. The rate of withholding tax being charged is high. How many Swiss account holders will move their money to even more distant and inaccessible locations rather than let HMRC get their hands on any of it? Swiss banks and HMRC alike will be hoping this has all been pitched at the right level and this is only a very small number. Andrew Clark of The Times has his doubts.

Other coverage of the deal includes:
Financial Times: Swiss tax deal to raise UK revenue (p1) and Bern and London’s pragmatic compromise (p2)
Daily Telegraph: Chancellor George Osborne launches £5bn tax raid on Swiss bank accounts
Accountancy Age: Liechtenstein remains best option, say advisors
The Guardian: Treasury strikes tax evasion deal with Switzerland to recoup unpaid cash

George Crozier
CIOT External Relations Manager
Thursday 25 August 2011


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