The government is seeking to give effect to the UK / Swiss tax agreement signed in October 2011. The agreement demonstrates HMRC’s desire to show that there is ‘no hiding place’ for tax evaders. UK individuals with Swiss investments will have to disclose or suffer a one-off levy and withholding taxes.

Baker Tilly analysis

HMRC staff resource is scarce and the emphasis is increasingly on encouraging taxpayers to volunteer disclosure of tax irregularities. The UK / Swiss agreement forms part of HMRC’s strategy in reducing offshore tax evasion by demonstrating that there is ‘no hiding place’. Finance Bill 2012 will legislate to ensure that UK resident individuals with investments in Switzerland pay tax on those funds. Those failing to disclose Swiss accounts will pay a one-off levy to settle past tax liabilities and a withholding tax on future income and gains arising in Switzerland. HMRC will also be able request information regarding suspected tax evaders from the Swiss tax authority.

In detail

The draft Finance Bill 2012 includes proposed legislation on the special tax agreement between the UK and Swiss governments. The agreement involves individuals resident for tax purposes in the UK who directly or indirectly hold investments and bank accounts in Switzerland. HMRC expects such individuals to authorise disclosure of Swiss accounts.

The agreement has three effects:

1. Unless individuals agree to disclose, historical tax issues will be dealt with by means of a one-off levy on funds held beneficially at 31 December 2010 and 31 December 2012 and calculated using a complex arithmetical formula. In most cases, payment of the levy will mean that the individual has no further exposure to income tax, capital gains tax, inheritance tax and VAT in respect of the financial assets to which the levy applies.
2. Looking ahead, Swiss income and gains arising after 1 January 2013 will be subject to a withholding tax (previously announced as being up to 48%). Individuals who can prove they are complying with their tax obligations will not be subject to the withholding.
3. The enhanced sharing of information between the tax authorities of the UK and Switzerland means that where tax evasion is suspected, HMRC will be able to approach the department’s Swiss counterparts to seek information regarding a limited number of individuals.

HMRC seeks to raise up to £7bn in extra revenue as a result of the agreement, which was signed on 6 October 2011. Assuming ratification by both governments, it will come into force on 1 January 2013.