Right tax rate 'is crux of Swiss bank deal'

Tax experts have urged ministers to take great care when finalising the details of their plan to clampdown on individuals who invest with Swiss banks to evade tax.

The Government this week announced that it is working with Switzerland’s authorities to compel British individuals to pay tax on the interest they earn in accounts held in the Alpine country. Negotiations have only just begun, and details such as the rate of the planned withholding levy are yet to be confirmed.

The success of the deal between the two nations ‘centres on how high the rate… is set and what subsequent information on bank accounts HMRC are provided with by the Swiss banks,’ said Jason Collins, head of tax disputes and investigations at the law firm McGrigors.

Should the charge not be high enough, ‘UK taxpayers may just see that as the price payable for anonymity, and [that] the Revenue [is sending] out a message that it has “given up”,’ warned Mr Collins.  

‘However, the Swiss will not want to set the rate too high for fear that account-holders will take flight. The compromise might be to agree a “ratchet” to increase the rate over time.’

The possibility of account holders moving their money to another jurisdiction was also raised by Jeff Millington, director at the consultancy BTG Tax, who suggested that if the withholding tax rate were to be set over 20%, UK taxpayers with undisclosed income in Switzerland may move their money en masse to Liechtenstein, to exploit the Revenue’s sympathetic disclosure initiative agreed with the principality.

An HMRC tax ‘amnesty’ for accounts held in Swiss banks – along the lines of the Liechtenstein disclosure facility (LDF) – is possible, claimed John Cassidy, tax-investigation and dispute-resolution partner at PKF, but he added that ‘there is no guarantee that [it would] be as generous as the LDF’.

‘If anyone with an overseas account has tax arrears to declare, I would urge them to put things right before HMRC catch up. Many [individuals] may be able to create a financial asset in Liechtenstein now to enable them to take advantage of the LDF: a low-cost option.’

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