Switzerland and the UK initial tax agreement
Bern, 24.08.2011 - Today in Zurich, British and Swiss negotiators concluded the negotiations on outstanding tax issues and initialled a tax agreement. Under this agreement, persons resident in the United Kingdom can retrospectively tax their existing banking relationships in Switzerland either by making a one-off tax payment or by disclosing their accounts. Future investment income and capital gains of British bank clients in Switzerland will be subject to a final withholding tax, and the proceeds of this will be transferred to the British authorities by Switzerland. In addition, mutual market access for financial services will be improved. The agreement should be signed by both governments in the next few weeks and could enter into force at the start of 2013.
The text of the agreement initialled by the negotiators Michael Ambühl (State Secretary, Swiss Federal Department of Finance) and Dave Hartnett (Permanent Secretary for Tax, HM Revenue & Customs) not only respects the protection of bank clients' privacy, but also ensures the implementation of legitimate tax claims. Both sides acknowledge that the agreed system will have a long-term impact that is equivalent to the automatic exchange of information in the area of capital income.
The tax agreement between Switzerland and the United Kingdom is largely the same as the agreement with Germany that was initialled on 10 August 2011. For example, the tax rates for the regularisation of the past are identical. The differences are due primarily to the different tax systems, and concern in particular the tax rates for future income and procedural arrangements. The difference regarding the amount of funds advanced by the banks is due to the different business volumes concerned.
As usual, the complete text of the agreement will be published after it has been signed by both governments in a few weeks' time. The agreement includes the following points in particular:
· Final withholding tax for the future: Future investment income and capital gains should be directly covered by a final withholding tax. The tax rate has been set between 27% and 48%, depending on the category of capital income. The tax rates are slightly under the regular marginal UK tax rates. The final withholding tax is a tax at source. After it has been paid, the tax obligation towards the country of domicile will generally have been fulfilled.
· In order to prevent new, undeclared funds from being deposited in Switzerland, it has been agreed that the British authorities can submit requests for information in the context of a safety mechanism that must state the name of the client, but not necessarily the name of the bank. The number of requests that can be submitted is limited and there must be plausible grounds. The number will be in the low to mid hundreds and not exceed 500 per year; an adjustment will then be made based on the results. So-called fishing expeditions are not permissible.
· Back taxation: To retrospectively tax existing banking relationships in Switzerland, persons resident in the UK should be given one chance to make an anonymous lump-sum tax payment. The size of this tax burden will vary from between 19% to 34% of the assets in question, and will be determined based on the duration of the client relationship as well as the initial and final amount of the capital. Instead of such a payment, those affected should also have the possibility of disclosing their banking relationship in Switzerland to the British authorities.
· Further elements: Switzerland and the UK have decided to facilitate mutual market access for financial institutions. Likewise, the problem of purchasing data relevant for tax collection purposes has been resolved. The package also includes a solution for the problem of possible prosecution of bank employees.
The agreement contains special rules for non-UK domiciled individuals, i.e. persons living in the UK who do not have their permanent home there.
In order to ensure a minimum income from the retrospective taxation of existing banking relationships as well as to state their resolve to implement the agreement, the Swiss banks have undertaken to pay a guarantee in the amount of CHF 500 million. The funds advanced by the banks will be offset by the incoming tax payments and refunded to the banks.
The negotiations on the tax agreement commenced in January 2011 based on a joint declaration signed in autumn 2010. The next step after initialling is the signing of the agreement by both countries' governments in the weeks ahead. Then the legislative organs of both countries must endorse the agreement. In Switzerland, the agreement will probably be subject to an optional referendum. The agreement should enter into force at the start of 2013.
Address for enquiries
Media Spokesperson FDF,
tel. +41 31 322 60 86
Mario Tuor, Communications,
State Secretariat for International Financial Matters (SIF),
tel. +41 (0)31 322 46 16
Federal Department of Finance