6 September 2011

• Liechtenstein Disclosure Facility still best way to come clean

According to our research the information sharing provision under the new UK-Swiss tax agreement may fail to discover the identities of some Swiss account holders.

Under the terms of the new Swiss-UK agreement, existing funds held by UK taxpayers in Switzerland will be subject to a one-off deduction of between 19% and 34% to settle past tax liabilities. From 2013, a new withholding tax of 48% on investment income and 27% on capital gains will be levied on the Swiss-held assets of UK residents.

The agreement also enables HM Revenue and Customs to request details of Swiss accounts held by up to 500 UK taxpayers each year. However, our research points out that HMRC will not be able to use this information sharing provision to track down all tax evaders enjoying the anonymity offered by the Swiss banking system.

Derek Levy, Tax Partner in our London office comments: “We would be very doubtful that either the Swiss banks or the Swiss tax authorities will be able to identify all those that are subject to UK tax on their overseas assets in order to apply the withholding tax correctly.”

“Even if HMRC does have suspicions about an individual, as well as the limit in the number of disclosure requests that can be made, it may also prove difficult to trace the assets of tax evaders who are the ultimate beneficiaries of corporate or trust accounts, but not named as the account holder.”

“It is also unclear exactly how the information disclosure arrangements will apply to those who have residences in several countries but should be liable to tax under UK law.”

Liechtenstein Disclosure Facility still best way to come clean

The Liechtenstein Disclosure Facility remains the best option for UK tax evaders to regularise their tax status, despite the new agreement struck between the UK and Swiss authorities.

Our research points out that the Liechtenstein Disclosure Facility (LDF) – which at present is open regardless of the jurisdiction in which the offshore assets were held, offers a much stronger incentive for UK taxpayers to disclose past liabilities.

Penalties under the LDF are usually capped at 10% and a cut-off point is applied so that tax liabilities dating to before April 1999 are dropped.

Derek adds: “With more international tax agreements on the table, there has been a mounting sense that coming clean on past tax liabilities was the best option, but people had been waiting to see how the rumoured Swiss deal would compare with the Liechtenstein Disclosure Facility.”

“It is now clear that the Liechtenstein Disclosure Facility offers more favourable terms for disclosure - the resulting total liability under the LDF can for many be expected to be lower than under the Swiss deal. Although a hard core of individuals may opt for continued evasion, we would expect to see HMRC’s take from the LDF increase significantly.”

Derek Levy