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Switzerland: historic tax agreement about to be signed

Date: 02 Aug 2011

Citywealth

According to recent media speculation, banking secrecy capital Switzerland is close to finalising a historic tax agreement with the UK and Germany to tax undeclared assets hidden in Swiss bank accounts in return for account holders retaining their banking secrecy. Moreover, Switzerland and the US are also expected to strike a deal whereby the US is financially compensated in return for terminating their investigations in to US tax evaders with funds in Switzerland.

Such developments strongly reinforce the view, held by many in the Tax Investigations industry, that HMRC is ramping up its campaign against tax evasion. Indeed, in addition to utilising the information it has on tens of thousands of offshore accounts, derived largely from initiatives such as Tax Information Exchange Agreements (TIEA) between countries across the globe, HMRC is also willing to take a pragmatic approach, where necessary, to reach those investors who are perhaps more difficult to expose via other methods.

With this in mind, many investors will be weighing up whether to ‘wait and see’ what the Swiss deal looks like, or take advantage of current disclosure opportunities, such as the Liechtenstein Disclosure Facility, a partial amnesty negotiated by HMRC two years ago.

In terms of the detail of the Swiss deal, reports have suggested that Britons with funds hidden in Switzerland will pay tax at 50 per cent and the deal will legitimise their undeclared assets, on an anonymised basis. However there is still a degree of uncertainty. Our advice to clients is to come forward now to use the LDF, as any deal with Switzerland will not be more beneficial than the LDF and the LDF is currently the most attractive option to make a voluntary disclosure and legitimise your offshore account.

For example, to qualify for the LDF, you need to have a Liechtenstein connection, but this can be as simple as opening a bank account in Liechtenstein and moving some of the money from the Cayman Islands. The LDF offers immunity from prosecution, a streamlined process and special terms outside the normal tax legislation. Moreover, under the LDF you only need to pay back taxes from 6 April 1999. Normal legislation states that HMRC can collect unpaid taxes looking back 20 years.

The fact is that HMRC have introduced a raft of new legislation to make life difficult for those ‘caught’ with a tax problem, as opposed to those who come forward voluntarily. The new rules include publishing the names of tax defaulters and higher financial penalties if caught ‘deliberately’ evading taxes. A ‘wait and see’ approach is dangerous even for those with Swiss assets because HMRC could find out about the situation and open an investigation. An investigation will be more expensive and more intrusive.

Fiona Fernie is partner in the Tax Investigations team at BDO LLP

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