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Switzerland agrees to tax British investors’ hidden billions

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An ‘historic’ agreement with Switzerland will resolve abuse of Swiss banking secrecy by UK taxpayers and is expected to secure billions of pounds of unpaid tax from 2013, HM Treasury announced last night.

David Gauke, the Exchequer Secretary to the Treasury, told the BBC this morning that the government is aiming to raise ‘billions’ over time, not every year.

One-off deduction

Accounts held by UK taxpayers in Switzerland at 31 December 2010 that remain open on 31 May 2013 will be subject to a one-off deduction of between 19% and 34% to ‘settle income tax, capital gains tax, inheritance tax and VAT liabilities’.

Those who have already paid their taxes will be unaffected. The deduction will not be made if the account holder instructs the bank to disclose details of the account to HMRC, enabling HMRC to seek unpaid tax, interest and penalties.

Swiss banks will make an up-front payment to the UK of SFr500 million ‘as a gesture of good faith’, the Treasury said.

Withholding tax

From 2013, where the investor has not authorised disclosure to HMRC, investments will be subject to an annual withholding tax of 48% on investment income and 27% on gains.

‘The rates of this withholding tax will be very close to the top rates of UK tax. Payment of the withholding tax will satisfy UK tax liabilities on the income and gains,’ the Treasury said.

Information sharing

The move will ‘ensure the effective future taxation’ of UK residents with funds in Swiss bank accounts and will be accompanied by ‘a new information sharing provision which will make it easier for HMRC to find out about Swiss accounts held by UK taxpayers’, it added.

The new power ‘is in addition to, and goes further than, the provisions for information exchange under the UK-Switzerland Double Taxation Agreement’.


‘Both sides acknowledge that the agreed system will have a long-term impact that is equivalent to the automatic exchange of information in the area of capital income,’ said the Swiss Federal Department of Finance. The agreement will ‘probably’ be subject to an optional referendum in Switzerland.

The department has set out further details of the agreement, which is expected to be signed ‘in a few weeks’ time’:

‘Final withholding tax for the future: Future investment income and capital gains should be directly covered by a final withholding tax. The tax rate has been set between 27% and 48%, depending on the category of capital income. The tax rates are slightly under the regular marginal UK tax rates. The final withholding tax is a tax at source. After it has been paid, the tax obligation towards the country of domicile will generally have been fulfilled.

‘In order to prevent new, undeclared funds from being deposited in Switzerland, it has been agreed that the British authorities can submit requests for information in the context of a safety mechanism that must state the name of the client, but not necessarily the name of the bank. The number of requests that can be submitted is limited and there must be plausible grounds. The number will be in the low to mid hundreds and not exceed 500 per year; an adjustment will then be made based on the results. So-called fishing expeditions are not permissible.

‘Back taxation: To retrospectively tax existing banking relationships in Switzerland, persons resident in the UK should be given one chance to make an anonymous lump-sum tax payment. The size of this tax burden will vary from between 19% to 34% of the assets in question, and will be determined based on the duration of the client relationship as well as the initial and final amount of the capital. Instead of such a payment, those affected should also have the possibility of disclosing their banking relationship in Switzerland to the British authorities.

‘Further elements: Switzerland and the UK have decided to facilitate mutual market access for financial institutions. Likewise, the problem of purchasing data relevant for tax collection purposes has been resolved. The package also includes a solution for the problem of possible prosecution of bank employees.'

The agreement contains 'special rules' for non-UK domiciled individuals, ie. persons living in the UK who do not have their permanent home there, the department added.