By Richard Johnstone | 25 August 2011
The government has reached an agreement with Switzerland to tackle offshore tax evasion. This is expected to secure billions of pounds of unpaid tax for the UK exchequer.
The Treasury has said that the agreement will resolve the long-standing abuse of Swiss banking secrecy by people who seek to conceal the proceeds of tax evasion.Under the terms of the agreement, money held by UK taxpayers in Switzerland will be subject to a one-off deduction of between 19% and 34% to settle past tax liabilities.
This will take place in 2013, and will settle any income tax, capital gains tax, inheritance tax and VAT liabilities that the account holder has. It will not be applied if the account holder instructs the bank to disclose details of the account to Revenue & Customs.
Following this, a new withholding tax of 48% on investment income and 27% on gains will ensure the effective taxation of UK residents with funds in Swiss bank accounts. This will be accompanied by an information sharing arrangement that will make it easier for R&C to find out about Swiss accounts held by UK taxpayers.
Ahead of the taxes being levied, and as an act of good faith, Swiss banks will make an up-front payment of 500m Swiss francs, around £383.8m, to the Exchequer.
Chancellor George Osborne said: ‘Tax evasion is wrong at the best of times, but in economic circumstances like this it means that hard-pressed law-abiding taxpayers are forced to pay even more. That is why this coalition government made it a priority to go after those who don't pay their fair share.
‘We will be as tough on the richest who evade tax as on those who cheat on benefits. The days when it was easy to stash the profits of tax evasion in Switzerland are over.’
The deal with Switzerland follows the agreement reached with Liechtenstein to tackle similar evasion, and the creation of a new dedicated team of R&C investigators to catch those hiding money offshore.
The agreement will be ratified in principle today in Zurich by Dave Hartnett, permanent secretary for tax at R&C, and Swiss State Secretary Michael Ambuehl. It will come into force following parliamentary scrutiny.
Hartnett said: ‘The world has changed for tax evaders. A few years ago, nobody would have anticipated that we would conclude an agreement with Switzerland to tackle tax evasion.
‘However, with the clear wish of Switzerland as well as the United Kingdom to ensure that tax is paid as it should be, we are embarking on a new course which preserves important principles for each jurisdiction, and will be fair for all UK taxpayers. We will secure significant sums of tax that some had thought we would never see.’
The announcement comes on the day that a new report reveals that R&C has not collected £27.4bn in tax revenues in the last five years.
The report by the 2020 Tax Commission, a joint project by the TaxPayers' Alliance and Institute of Directors, finds that the money was lost as R&C 'gave up’ pursuing some liabilities. This was either due to remissions, where debts are capable of recovery but R&C has decided not to pursue the liability, or write-offs, where debts are considered to be irrecoverable because there is no practical means to pursue them, such as when a firm goes out of business.
The report also found that in the last five financial years £4.4bn of income tax has not been collected.
