The recent negotiations between the UK Government and Swiss Banks may result in a situation similar to the Liechtenstein Disclosure Facility – a legal UK tax loophole. Former Inland Revenue tax investigation senior official discusses the background.
THE BACKGROUND TO THE RECENT SWISS BANK – U.K. GOVERNMENT NEGOTIATIONS:
Historically, Switzerland has been famous for its discretion in terms of client confidentiality. The background to today’s situation with the U.K. Government negotiating a deal with Swiss Banks to preserve confidentiality has its roots in the movement of capital. This happened first of all from the U.K. to local tax jurisdictions where confidentiality was assured – places such as Cyprus, Jersey, Guernsey and the Isle of Mann, then later, to Switzerland, which remained the only place where confidentiality could be maintained.
Realistically, this has been the position for probably the last ten years. So, where and when a person is fearful that a bank with which he has a relationship is going to pass his name over to the Revenue, then, prior to that event happening, the person’s contacts would arrange for the money to be transferred over to Switzerland.
Where things stand at the moment is that the U.K. Revenue are about to reach a deal with the Swiss Banks, whereby they pay an amount which will be based on the increasing capital between specific periods – the periods quoted at present range between 6 and 10 years.
The increasing capital will be deemed to be income and it will be taxed at an agreed rate. Interest will be added and so will a penalty. The penalty is likely to be 10%.
When that agreement is reached between the U.K. Revenue and the Swiss Banks, the Swiss Banks will go to their client’s accounts, calculate what’s due, then send a cheque off to the Revenue.
If the Revenue ever investigate the client in the future, then the client will contact the Swiss Bank who will then produce the ‘Get out of Jail’ card showing that the client has already made the payment and that will be the end of the tax investigation.
If that happens, there’ll be a lot of frustrated tax inspectors around the U.K. It remains to be seen whether those frustrations will be vented a few years after the closure of the investigation by the investigators re-opening the investigation. Tax investigators are curious.
It’s very similar to a situation in Ireland about fifteen years ago when the Irish Revenue had their first amnesty. That first amnesty was the predecessor to about fifteen amnesties which the Irish Revenue thought would result in people beating a path to their door to pay back taxes.
The methodology used by the Irish Government was very sound. The practical problem was that people didn’t have enough money to pay the taxes because the tax rates were so high – Ireland has a very punitive interest rate. It’s not based on commercial interest rates, it’s based on penalty interest.
Whenever I met with people, trying to work out what they owed, it was invariably more than what they had in the bank. So, what did they do? They certainly didn’t employ the services of a tax investigation specialist who advocated compliance with the tax laws, including full disclosure. Instead they found someone, who, for a large fee was prepared to introduce them to a Swiss Bank.
They would then transfer the money from its location at the time to a Swiss Bank where it remained until the present time.
Right now, however, with the U.K.’s Swiss Bank deal imminent, things could change quite rapidly and they may still require some help from an expert in tax investigations in order to protect their assets long term and minimize possible penalties and perhaps other repercussions.
If you believe you’re at risk of tax investigation, especially for undeclared offshore assets, Evans has considerable experience in this area and is currently assisting clients to take advantage of a little known legal, UK approved tax ‘loophole’ known as the Liechtenstein Disclosure Facility or LDF. He advises anyone interested to take advantage of the education offered by the free articles and videos on UK Tax Investigation site.