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MPs challenge logic behind tax rate in UK-Swiss agreement

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MPs on the Treasury Committee have challenged the logic behind the decision to withhold tax from anonymous Swiss bank accounts at a rate lower than the highest rate of UK income tax.

In today’s report, Closing the Tax Gap: HMRC's record at ensuring tax compliance, the Treasury Committee also noted that the long delay before withholding begins under the terms of the UK-Swiss agreement would allow those with Swiss bank accounts to remove their assets before withholding is applied.

‘We are concerned that the levies on Swiss bank accounts will result in those who have sought to avoid tax by concealing their assets offshore receiving more favourable tax treatment than those who were compliant in the first place,’ the report said.

‘This seems to reward those who have deliberately avoided tax over those who have not. [Dave Hartnett, HMRC’s Permanent Secretary for Tax] explained that the reason for the withholding rates being slightly lower than the rates that would apply in the UK was that: “The 48% is a calculation based on the top rate of 50% when money would often not come in, or generally not come in, until 31 January following the end of the tax year. This money will come in earlier, so we calculated a withholding based on that anticipation of money.”'

The MPs said this logic was not followed in domestic withholding taxes on UK income, where tax rates ‘do not vary depending on whether income tax is withheld at source (such as through PAYE or withholding tax on savings income) or paid at the end of the tax year following the submission of a tax return’.

‘We do not see why those with offshore bank accounts, who may not currently be fulfilling their tax obligations, should be treated any differently.’

The Committee noted that the agreement had been challenged by the European Commission and said it would follow closely the government’s progress on implementing it.