The UK Treasury will only receive a fraction of the revenues it expected from the one-off Swiss Capital Tax levied under the UK-Swiss tax agreement, according figures just released by HM Revenue & Customs.
The agreement, which came into force in January, gave UK-resident owners of undeclared Swiss bank accounts the opportunity of regularising their tax position by making a one-off flat-rate withholding tax calculated as a fraction of the average undeclared assets. This fraction could vary between 19 and 41 per cent depending on the circumstances.
Originally HM Treasury estimated that the arrangement would deliver it a windfall of GBP3.2 billion. However, the official figures suggest that the numbers will be much smaller. Revenues of GBP342 million were recorded in January, with another GBP258 million in July and GBP147 million in August. Further receipts are likely to taper off rapidly, says Ronnie Ludwig of tax advisors Saffery Champness.
Ludwig says he never expected revenues from the agreement to match the Treasury’s hopes. The cited figure of GBP3.2 billion might well have been approximately what HM Revenue & Customs was actually owed from undeclared Swiss holdings, but, he says, it was ‘massively optimistic’ to expect that they might recover it all, because dedicated tax evaders will continue to use ‘very sophisticated tax planning structures’.
‘A large number of Swiss bank accounts with connections to the UK are not actually held by individuals, but are bound into complex webs of offshore subsidiaries and trusts’, says Ludwig. It is extremely time-consuming and expensive for HMRC to investigate these offshore structures, and their beneficial owners can switch the assets from one jurisdiction to another as soon as they fear the authorities are closing in.
However, another reason for the poor return from the agreement is that many Swiss bank clients are UK resident non-domiciles, who are exempt from the agreement. Moreover a large number of UK clients have opted for voluntary disclosure rather than paying the regularisation charge, since in the longer term their assets are probably going to be disclosed under tax information exchange agreements anyway. This fact emerged in July this year when the Swiss Bankers Association reported that its member banks were having to make far less provision for the payments than previously feared.