UK and International Tax news
Protocol To The UK – Swiss Agreement On Offshore Tax Evasion
Thursday 22nd March 2012
Further to our International Tax News Items of 26 August and 13 October 2011, a Protocol amending the UK – Swiss Agreement signed on 6 October 2011 has just been agreed between the UK and Switzerland. The Protocol introduces further rules in respect of the level of the regularisation tax in respect of past liabilities, future withholding tax on interest, inheritance tax, and information exchange.
As previously reported, under the terms of the agreement, funds held by UK taxpayers in Switzerland on 31 December 2010 and still in existence on 31 May 2013, will be subject to a one-off deduction [regularisation tax] of between 19% and 34% to settle past tax liabilities including income tax, capital gains tax, inheritance tax and VAT liabilities, in relation to the funds in the account. The deduction will not be applied if the account holder instructs the bank to disclose details of the account to HMRC. Following that disclosure, HMRC will seek unpaid taxes with relevant interest and penalties.
The Protocol provides that where the level of the regularisation tax in the agreement between Switzerland and Germany is higher than that currently included in the UK – Swiss agreement, the UK can request the higher rate of tax to apply.
From 2013, income and gains arising on investments held by individual UK taxpayers in Swiss banks will be subject to new withholding tax rates. These rates will be close to the top UK rates, being 48% on investment income and 27% on gains. Payment of the withholding tax will satisfy UK tax liabilities on the income and gains. The withholding tax will not apply if the account holder authorises disclosure of details of income and gains to HMRC and pays any associated taxes in the UK.
The Protocol provides that withholding tax should not be levied on interest payments where tax has already been levied under the EU Savings Directive at 35% in which case a finality tax of 15% should be charged by the Swiss paying agent instead. Therafter the taxpayer should have no further liability to UK tax on the interest for the relevant tax year, or to any interest, penalties or surcharges which might otherwise be chargeable on that intetest.
The Protocol also includes provisions applying in respect of UK inheritance tax in circumstances where the relevant person dieson or after the date of entry of ther agreement. The Swiss paying agent must ‘freeze’ the relevant assets of which the relevant person was the beneficial owner at the date of death. Withdrawals of up to 60% of the relevant assets will however be permitted.
The assets will remain frozen until either a certificate of non UK domicile status is provided, or auhorisation for disclosure of the accounts to the competent authority in Switzerland is provided to the paying agent.
If the Swiss paying agent is not provided with either the certificate or disclosure authorisation, tax at 40% of the relevant assets at the date of death will be levied.
In addition, the Protocol also confirmed that no arbitrary requests for information or ‘fishing expeditions’ will be permitted.Contact Us