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Switzerland, UK Supplement Withholding Tax Agreement

by Ulrika Lomas, Tax-News.com, Brussels

23 March 2012


Switzerland and the United Kingdom have recently signed in Brussels a Protocol of Amendment that supplements the withholding tax agreement of October 6, 2011.

According to the Swiss Federal Department of Finance (FDF), the Protocol of Amendment was signed by Michael Ambühl, State Secretary in the Federal Department of Finance, and Dave Hartnett, Permanent Secretary for Tax, HM Revenue & Customs.

The FDF explains that the agreement remains unchanged in essence, noting that interest payments will be excluded from the agreement's scope. At the same time, it will be ensured that UK taxpayers can discharge their tax liability on interest payments, it adds.

The FDF confirms that effectively nothing will change for bank clients; their tax obligations will be fulfilled. Only the legal structure will change, it emphasizes, noting that the concerns of the EU Commission regarding compatibility with European Union (EU) law have now been removed.

Inheritance is now also covered by the agreement in order to eliminate a loophole. In the case of inheritance, the heirs must consent to either collection of a tax or disclosure.

Concluding its release, the FDF comments: “The agreement not only respects the protection of bank clients' privacy applicable in Switzerland but also ensures the implementation of the UK authorities' legitimate tax claims. In addition, mutual market access for financial services will be improved. The agreement requires the approval of parliament in both countries, and should enter into force at the start of 2013.”

Once implemented, the agreement will permit UK residents to retrospectively pay tax on existing bank relationships in Switzerland, either by making a one-off tax payment or by making a full disclosure of their banking affairs to UK authorities. An anonymous lump sum payment will be possible providing that the account in question was open on December 31, 2010 and remains open on May 31, 2013.

Tax will be charged at a rate between 19% and 34%, dependent on the assets in question and determined by both the duration of the client-bank relationship and the initial and final amount of capital held in the account. According to the UK Treasury, this will settle all income tax, capital gains tax, inheritance tax and VAT liabilities related to the funds in question.

In addition, the agreement provides for a final withholding tax to be levied on any future investment income and capital gains of UK bank clients in Switzerland. A 48% tax will be charged on investment income, with 27% levied on capital gains. Once again, this payment will satisfy all UK liabilities on income and capital gains, and will not apply if the taxpayer offers HMRC a full disclosure.

Crucially, the deal also permits the UK to submit information requests to Swiss authorities, with the aim of preventing the future deposit of undeclared funds. Any such requests must be made in the context of a safety mechanism, which will state the name of the client, but not necessarily that of the bank. A limited number of requests will be allowed each year (up to 500), and the Treasury says this agreement goes further than the information exchange provisions of the existing double tax treaty.

TAGS: inheritance tax | tax | investment | offshore confidentiality | interest | law | banking | United Kingdom | offshore | agreements | offshore banking | banking secrecy | withholding tax | Switzerland | European Union (EU) | services | Europe

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