Finance and Tax Blog for individuals and companies

On 20 March 2012 the UK and Switzerland tightened the terms of the tax cooperation agreement by introducing higher penalties. It is aimed at individuals hiding assets in Swiss bank accounts.

Last year the Chancellor announced a crackdown on Swiss assets by entering into the UK-Switzerland tax agreement which was signed on 6 October 2011 and expected to come into force in January 2013. It gives UK individuals an opportunity to bring their tax affairs up to date if they have accounts in Switzerland for which they have not declared income and gains to the UK tax authorities. Under the agreement account holders will be asked by the Swiss Government whether they have paid the correct level of tax to HM Revenue & Customs.

If they declare they have not, they will face a one-off penalty to regularise their affairs without having to reveal their identities. Such individuals can clear their arrears and keep their anonymity by making a one-off payment which will be deducted by the relevant Swiss bank from the balance in the account in 2013 (when the agreement comes into force) and passed over to the UK authorities.

Alternatively, the individual can disclose the account to the UK authorities, in which case the tax liability is calculated in the usual way and the taxpayer must pay the arrears plus interest and penalties.

Once the agreement is in force and the initial payment made, taxpayers can either make an annual disclosure or pay an annual withholding tax.

The changes announced on 20 March 2012 amends the October 2011 agreement and have raised the minimum penalty from 19% to 21% of the amount of tax owed and increased the maximum penalty from 34% to 41% of the amount of tax owed. The level of penalty will depend on how long the account has been held. Individuals will then pay an annual withholding tax of 48% on income. Capital gains tax will be 27% and dividends will be taxed at the rate of 40%. The announcement also clarifies:

• The relationship between the above Agreement and the EU Savings Agreement (EUSA) with Switzerland. Where a relevant person has suffered withholding tax under the EUSA, an additional 13% ‘tax finality payment’ will need to be paid to obtain tax clearance under the terms of the Agreement. This achieves the same effect as the 48% withholding tax levied under the original terms of the Agreement
• Introduces a new inheritance tax levy on the death of the relevant person unless their personal representatives authorise the Swiss bank to disclose the account details to the UK

The necessary legislation to give effect to the changes will be in Finance Bill 2012.

The Belize TIEA entered into force on1 August 2011 having been signed on 25 March 2010. The Agreement set out in the Schedule to the Order below has been made with the Government of Belize with a view to exchange of information in relation to the administration or enforcement or recovery of taxes covered within its scope. Broadly the TIEA covers most taxes within each jurisdiction of the UK and Belize.

The text has been published as the Schedule to the International Tax Enforcement (Belize) Order 2011, No. 1685

The Liechtenstein TIEA entered into force on 2 December 2010 having been signed in the summer of 2009 when the UK and Liechtenstein pursuant to a memorandum of understanding (MOU) brought about the Liechtenstein Disclosure Facility (LDF). This was coupled with a five year Liechtenstein taxpayer assistance and compliance programme and by HMRC of a five year special disclosure facility.

Under the above programme financial intermediaries in Liechtenstein have a duty to identify persons known or where they have reason to believe may be liable to UK tax and notify such persons. They must cease to act for such persons or follow an HMRC procedure unless a person concerned can provide evidence that they are not liable to UK tax or are compliant in dealing with their UK tax reporting obligations in relation to their Liechtenstein connected affairs within 5 years period.