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During the last few years HMRC has adopted a rigorous approach
to tackle offshore tax evasion. There have been some significant
changes in respect of the Liechtenstein Disclosure Facility and the
Swiss-UK Tax Agreement. As HMRC's scrutiny continues,
international tax compliance remains paramount.
The latest on the Liechtenstein Disclosure Facility (LDF)
Liechtenstein and the UK recently signed a double tax treaty
which will come into force on 1 January 2013. The main features are
as follows.
A single charge rate (SCR) has been announced for 2010/11
– at a rate of 50%. This will operate with limited terms
but in a similar way to the composite rate option (CRO) within the
LDF beneficial terms.
2009/10 remains the odd year out with no CRO or SCR existing
for that year. This is something which can complicate LDF
calculations.
The limited terms of the SCR will be published by HMRC shortly,
along with an extensive update to their Q&A on the LDF which
contains the operational guidance on the disclosure process.
The LDF has been extended until April 2016. HMRC cites its
success to date and has published the following details of cases
and tax yield (as at May 2012).
Total number of LDF cases registered
2,638
LDF disclosures made so far
1,729
Total yield and paid on account
£385m
Average case settlement
£184,000
The LDF is still the most effective and tax efficient way of
settling any worldwide undisclosed tax matters.
Recent activity: Swiss-UK Tax Agreement
There has been some significant activity in respect of this
agreement recently. In the UK, legislation is about to receive
Royal Assent and become UK tax law. However, in Switzerland the far
left political party is pressing for Switzerland to move towards a
model of automatic information exchange and believes that the
agreement with the UK (and Germany) will inhibit this.
Consequently, the law failed to be approved by the Swiss Parliament
and may now be subject to a referendum which is likely to be in
November 2012. Observers believe this will delay the implementation
of the law and so the planned 1 January 2013 deadline for the
agreement to commence will be missed.
More importantly, the pursuit of a move to an automatic exchange
of information model would be a massive change in Swiss banking and
may result in the Agreement becoming unnecessary. Watch this
space.
In terms of the mechanics of the Agreement, a recent
modification means that in the future, if anonymity is preferred on
the death of an individual with Swiss assets, then the Swiss bank
will have to deduct 40% of the value of the assets at the date of
death and pay that over to the UK. Clearly an expensive option
which will need careful thought going forward.
Given the high rates charged in the withholding agreement for
future Swiss investments if anonymity is retained (48% on interest
and other income, 40% on dividends and 28% on capital gains), a
detailed consideration of the value of that anonymity will need to
be undertaken.
Other changes can be summarised as follows.
The minimum rate payable will increase from 19% to 21%.
Where under the original formula the tax rate applied in a
specific case would have been 34%, and that rate would have been
applied to at least £1m in relevant assets, then the tax rate
applied will increase in steps of one percentage point for each
additional £1m, up to a maximum of 41%. This means that the
rate payable on £7m or more will be 41%.
Clarification on the relationship between the Agreement and the
EU Savings Agreement (EUSA) with Switzerland has been given. 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.
At the moment the Agreement, with its increased tax rates and
uncertainty of application, is not going to provide comfort for
those with unresolved UK tax matters in respect of Swiss
investments. HMRC is developing its Offshore Co-ordination Unit
(OCU) with additional experienced investigators and we will
undoubtedly see an increase in tax enquiry work in this offshore
arena. Those under investigation may find benefitting from the LDF
is not available to them as HMRC uses its recently strengthened
enquiry powers under the new contractual disclosure facility and
continues to open up criminal investigations into offshore tax
fraud.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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