On 30 September 2011 Dave Hartnett was interviewed by the Chartered Institute of Taxation (CIOT)on the new tax agreement between UK and Swiss governments to crack down on offshore tax evasion by UK taxpayers…

In the interview for CIOT’s website – www.tax.org.uk – John Whiting, CIOT Tax Policy Director questions Dave Hartnett, the Permanent Secretary of Tax and Gary Ashford, Director at accountancy firm RSM Tenon Ltd and Chairman of CIOT’s Management of Taxes Sub-Committee, on the UK and Switzerland tax agreement signing to tackle offshore tax evasion.

CIOT have released a podcast of the UK-Swiss tax agreement interview on their website. To hear the podcast in full, click here.

In the interview Dave Hartnett says that the new tax deal was arranged between the UK and Switzerland because HMRC did not think Switzerland would change their banking secrecy rules anytime soon, so another approach was looked for.

Describing the agreement as a ‘ratchet’ deal, Hartnett says that “the more successful HMRC is in identifying people who have additional tax liability to pay, the greater the number of people [HMRC] will be able to search for.”

From March 2011 Switzerland agreed to adopt article 26 – Exchange of Information – of the Organisation for Economic Co-operation and Development (OECD) Model Double Tax Convention, which states:

‘The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to the Convention.’

Article 26 from Articles of the Model Convention with respect to Taxes on Income and Capital [as they read on 28 January 2003]

Any information that is exchanged between governments under article 26 should be kept confidential and only disclosed to people and authorities who are ‘concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to the taxes referred to’.

This means that the new tax agreement between the UK and Switzerland will allow HMRC to request specific information from Swiss authorities should the Revenue have ‘reason to be worried’ about UK residents investing in Switzerland.

When asked on the ‘information power’ HMRC get out of the ‘ratchet’ deal, Hartnett says:

“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 of information.”

Hartnett also makes clear that honest UK taxpayers with insurance investments in Switzerland will not be affected by the new withholding tax.

His advice for them is that “disclosure is always the right answer”.

For UK taxpayers who have always been ‘honest’ about their investments in Switzerland then HMRC will “confirm to them that we know all about them, and Swiss banks will then not apply withholding to them.”

Hartnett thinks that “maybe no more than 20% of UK residents investing in Switzerland” are potentially innocent of tax dodging.

For UK residents currently holding undeclared bank accounts in Switzerland, Hartnett says that they are faced with one of three options:

“suffer the withholding”
“make a disclosure to HMRC” – by direct disclosure to HMRC or through the Liechtenstein Disclosure Facility (LDF); or
“They can ‘go to hell’. And ‘go to hell’ means taking your money out of Switzerland and taking it somewhere else.”
For those choosing option three, “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 initiative”, Hartnett adds.

When asked by Whiting if it is a ‘fair summary’ that ‘hiding places are disappearing’, Hartnett agrees:

“I think it is. It might take us a little longer to get 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.”

When asked about an allegation that the UK-Swiss tax arrangement ‘lets fraudsters off’, Hartnett responds:

“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.

“You need to bear in mind that we know a huge amount more about UK residents with money in Switzerland than we knew about 5 years ago.

“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.”

John Whiting then asks if “this opens up the possibility of a real investigation…”

“Absolutely. Another serious money crime that doesn’t involved 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”, Hartnetts says.

And for the treatment of ‘non-doms’ investing money in Switzerland, a resident in the UK who is not domiciled there, Hartnett has made clear that the new tax agreement has negotiated:

“If non domiciled individuals are not straightforward with [HMRC] 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.”

Another important question asked by Whiting is how much the new tax deal agreement between the UK and Switzerland is expected to yield:

“It’s very difficult to be precise. The expectation is somewhere in the range of four to seven billion pounds,” says Hartnett.

Hartnett says that the sum in question – £4bn – £7bn – was calculated 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,” which was between £4bn-£7bn,
HMRC analysts also carried out an exercise in that number range; and
External specialists came out with a figure slightly above that 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,” Hartnett confirms.

“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.”

Commenting on the UK and Swiss signing of a new tax agreement, Gary Ashford, CIOT’s Management of Taxes Sub-Committee, said:

“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,” Ashford adds.

Click here to read the CIOT’s interview article ‘New tax agreement with Switzerland will help HMRC target tax dodgers’.

In summary, the CIOT’s interview with Dave Hartnett on the new UK-Swiss Tax agreement has concluded:

£4bn – £7bn is expected to be yielded by the UK-Swiss tax deal,
HMRC believe that only 20% of UK residents with investments in Switzerland are ‘potentially innocent’,
‘non-doms’ will be given specific arrangements but will be prioritised for criminal prosecution should they not be straightforward about their taxes,
Swiss banks will provide HMRC with the ‘top 10 destinations’ tax evaders move their money out too, allowing HMRC to decide where they target next; and
Secure ‘hiding places’ for tax evaders ‘are disappearing’ and the only ones left are the ‘ones that are a bit dodgy’.
The new withholding tax agreement signed by the UK and Switzerland will come into place as of 2013.

Kevin Kinsella, of KinsellaTax, said:

“In the interests of bringing the latest news in HMRC investigations work I would like to thank George Crozier of the Chartered Institute of Taxation for allowing us at KinsellaTax permission to quote their article from their website. I think the article does give an insight into HMRC thoughts on the new tax agreement with Switzerland.

“Anyone caught by the new taxation agreement needs to consider their actions as time appears to be running out for persistent tax evaders and the matter will only get worse; Although, Tax Justice Network (TJN) has produced a study of the UK-Swiss Tax Agreement which does show some very large holes in the agreement.”

Click here to read Tax Justice Network’s full report ‘The UK-Swiss tax agreement: doomed to fail’

“We at KinsellaTax are proud of our reputation of being able to deal with the most serious and complicated cases,” Kevin added.

“Many thanks to John Christensen at Tax Justice Network for allowing us to reprint their study on loopholes in the UK-Swiss tax agreement. It is in KinsellaTax’s interest to try to bring to our site all the best tax articles and we thank the people who allow us to do that in order that tax matters are fully aired.”

Do you have an undeclared bank account in Switzerland?

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