ZURICH/LONDON (Reuters) - Switzerland and Britain struck a deal to tax money kept by British residents in secret Swiss bank accounts, which will gift a windfall to the cash-strapped British government and helps the Alpine country’s banks come clean on untaxed accounts.
The Swiss bankers’ association welcomed the agreement but some tax experts wondered if it was the best deal possible for Britain.
Under the deal, money held by British residents with Swiss banks will be subject to a levy between 19 and 34 percent of the account balance and a withholding tax will apply going forward, the Swiss finance ministry said in a statement.
Swiss banks will have to pay 500 million Swiss francs (384 million pounds) upfront and the retro-active levy could net around 5 billion pounds for the British government, keen to boost revenue as it struggles with one of the largest budget deficits among industrialised countries.
From 2013 onward, a withholding tax between 27 percent and 48 percent will be applied, depending on the category of capital income. Both rates are slightly lower than the respective top tax rates in Britain.
The deal, which has to be approved by parliaments, follows the blueprint of a deal Switzerland sealed with Germany two weeks ago.
Strict secrecy has helped Switzerland build up a $2 trillion (1.2 trillion pounds) offshore financial sector. But the country has faced an international campaign in recent years against tax evasion as governments with big budget deficits seek to boost revenues.
British Finance Minister George Osborne has vowed to crack down on tax evasion as he has set out to eliminate a budget deficit of more than 10 percent over the next 4 years with a tough austerity program that includes unprecedented cuts in public spending.
“We will be as tough on the richest who evade tax as on those who cheat on benefits,” Osborne said in a statement. “The days when it was easy to stash the profits of tax evasion in Switzerland are over.”
Some tax experts voiced doubts about the value of the deal for Britain. Ronnie Ludwig, a partner in the private client team at accountants Saffery Champness, said the UK could have gone further in clawing back tax from undeclared assets.
“It’s good as far as it goes but it’s not all that it should be ... I think it’s a bit of a slap in the face for all those who honestly pay their taxes but it’s better than nothing and it’s a quick fix for the Treasury,” he said.
Chris Oates, head of Ernst & Young’s Tax Controversy team, said the deal may tempt Britons to move their money over the Swiss border into Liechtenstein.
“The Liechtenstein Disclosure Agreement only requires a back payment of taxes from 1999-2000 onward, rather than the total value of assets held in Switzerland,” he said.
“This could prove a more cost effective way to resolve past tax liabilities for UK individuals than the new Swiss arrangement.”
The Swiss finance ministry said the countries have decided to facilitate mutual market access for financial institutions.
“Likewise, the problem of purchasing data relevant for tax collection purposes has been resolved,” the ministry said. “The package also includes a solution for the problem of possible prosecution of bank employees.”
British authorities are investigating hundreds of HSBC (HSBA.L) customers suspected of tax evasion after it obtained details of around 7,000 Swiss accounts at the bank from another tax authority, a source at UK tax office HMRC told Reuters in June.
However, the original source of the data is a former employee at HSBC’s Swiss unit, who stole details on thousands of Swiss client accounts which have since found their way into the hands of tax authorities around Europe.
The HMRC started scrutinising its share of the haul last year, sending letters to hundreds of people suspected of hiding money offshore in September.
Efforts by cash-strapped western governments to crack down on offshore banking have put pressure on Britain’s own island tax havens in the Channel Islands and Isle of Man.
($1 = 0.794 Swiss Francs)
($1 = 0.610 British Pounds)
Additional Reporting by Chris Vellacott in London; Editing by Matt Falloon and Jon Loades-Carter