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.