Swiss tax deal with UK: A blow to global transparency efforts

Switzerland has struck a deal to return billions of pounds of unpaid taxes to the British Treasury, while preserving Switzerland's staunchly guarded secrecy laws. It follows a similar deal struck with Germany, raising concerns that it could undermine global efforts to increase transparency.

The agreement, which will be signed in the next few months and comes into place in 2013, will introduce a new withholding tax of between 27 per cent and 48 per cent, with a one off levy of up to 34 per cent to settle past tax liabilities.

As a goodwill gesture Swiss banks will make a one-off payment of 500 million Swiss Francs to the British Treasury.

“The days when it was easy to stash the profits of tax evasion in Switzerland are over,” said Mr George Osborne, Chancellor of the Exchequer. The deal must still be ratified by Switzerland and scrutinised by the British Parliament.

Switzerland struck a deal with Germany earlier this month, under which Swiss banks will levy a 26.4 per cent withholding tax on interest, dividends and capital gains on Germans with Swiss accounts, still preserving anonymity. A one-off goodwill payment is also being made of 2 billion Swiss francs.

The deal will also allow German authorities to submit a number of requests for information (about clients of Swiss banks).

The deal has been welcomed by the Swiss Bankers Association, but has faced considerable criticism.

Mr John Christensen, Director of the Tax Justice Network, argues it undermines efforts to reform the EU Savings Tax Directive (which ensures automatic information exchange on interest income, and gains through Europe) and fully include Switzerland.

The deal would have a knock on impact, strengthening Switzerland's hand when it came to negotiating deals with other countries. “This deal is a major step back for other countries attempting to strike deals with Switzerland,” he said.

Not all share his pessimism. Mr Stephen Camm, tax partner at PricewaterhouseCoopers in London, argues the structure of the deal makes those who want secrecy pay a heavy price.

“This is a very big price and a much bigger price than if you identify yourself and come out,” he said.

While the deal will help Britain and Germany in their efforts to re-fill depleted public coffers, from Switzerland's perspective the advantages are clear.

By being fully tax compliant in Germany (the country's main trading partner) and the UK it will help their banks gain further access to these European jurisdictions, says Ms Stephanie Jarrett, a tax lawyer at Baker and McKenzie in Geneva. She too believes it sets a precedent for the kind of deals Switzerland will hope to do in the EU at least.

The deal comes at a time when India awaits final Swiss ratification of the amendment to the Double Taxation Avoidance Agreement, which would allow Indian authorities to obtain specific banking information beginning April 1, 2011.

Double taxation pact with India on track, say Swiss officials

Swiss authorities have confirmed that the amendment to the Double Taxation Avoidance Agreement with India is on track to be completed by the end of the year.

“The Swiss Parliament has approved the revised DTA and the referendum period is about to come to an end without having anyone collecting signatures against the DTA with India,” said a spokesperson for Switzerland's Federal Department of Finance.

He added, “So there is a good chance that from the Swiss perspective the DTA can enter into force by the end of 2011.”

Once the DTA comes into force, there can be exchange of information relating to any fiscal year beginning on or after January 1, 2011.

Under the amended terms, India will be able to request information related to tax evasion cases, rather than bank information on tax fraud cases.

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