First came the Germans and then came the Brits. The UK Treasury has secured an agreement with authorities in Zurich to tax the assets of UK citizens held in Swiss banks to reduce on tax avoidance and stamp out
evasion. The deal will follow the lines of that which Switzerland made with Germany last month. The FT has
details:
‘Taxes on future income will be withheld at a rate of 48 per cent, corresponding to the top 50 per cent rate that now applies to Britain’s highest earners. A one-off levy of between 19 and 34 per cent will be applied to all Swiss accounts held by UK residents, with the exact percentage to be determined by the size of the deposit and how long it has been maintained. Switzerland’s banks have also agreed to pay the UK an initial up-front payment of SFr500m ($630m) in May 2013, with the amount to be deducted from future tax payments. This compares with the SFr2bn down-payment Swiss banks agreed to pay the German government, which bankers said reflected the disparate sizes of Switzerland’s UK and German deposit bases. While the one-off levy on past holdings is identical to the one contained in the earlier Swiss-German agreement, the tax rate on UK residents’ future income is nearly double the amount paid by German account holders.This gives UK account holders a bigger incentive than their German counterparts to shift funds out of Switzerland before the agreement takes effect in early 2013.’
The Swiss have also been allowed to protect the anonymity of account holders because discretion is vital to their success as a tax haven, although the UK reserves the right to request the banking details of 500 of its citizens a year.
There will be those who ask: why wasn’t this deal done sooner? Denis MacShane tweets that the Swiss authorities made a similar offer to the EU 10 years ago, which Gordon Brown rejected. It is tempting to mock the former chancellor’s decision; but, as Britain was wedded to a Fiscal Golden Rule and growth was inexorable, there was no reason to raise additional revenue in an open and transparent way. Like so many things in life, the campaign against the Swiss tax regime started in America in 2008, when Bradley Birkenfeld, a middle ranking executive at Swiss bank UBS, was convicted of aiding and abetting tax evasion. The net has been closing ever since.
There are doubts, though, about how effective this tax will be. Britain worked a similar arrangement with Liechtenstein in 2009, which is understood to have worked reasonably well. But the Times’ Andrew Clark (£) warns that many account holders will flee Switzerland in search of smaller, more obscure havens. This perhaps explains why the Treasury is so vague about how much the tax will raise, pledging only rough estimates between £3bn and £6bn.
The final upshot from this story is that the idea that Britain should leave the European Union and ape Switzerland as an ultra-low tax economy looks optimistic, a point first made by Bagehot last month.
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