Switzerland and the U.K. reached an agreement to end a dispute over tax evasion by wealthy Britons holding offshore accounts with Swiss private banks.
Swiss banks will pay 500 million Swiss francs ($629 million) to the U.K. government to cover the failure by their clients to disclose undeclared money in the past, the two countries’ finance ministries said yesterday. The banks will later be reimbursed from taxes paid by their customers.
“The days when it was easy to stash the profits of tax evasion in Switzerland are over,” U.K. Chancellor of the Exchequer George Osborne said in an e-mailed statement. “We will be as tough on the richest who evade tax as on those who cheat on benefits.”
The accord comes after Switzerland agreed in March 2009 to meet international standards to avoid being blacklisted as a tax haven by the Organization for Economic Cooperation and Development. The settlement may trigger outflows by Britons who question the value of cross-border accounts as Swiss banking secrecy crumbles and follows a similar agreement with Germany earlier this month.
The accord “respects the protection of bank clients’ privacy, but also ensures the implementation of legitimate tax claims,” the Swiss Finance Ministry said in an e-mailed statement from the capital, Bern.
Swiss banks will levy a withholding tax of 48 percent on investment income and 27 percent on capital gains earned by Britons with offshore accounts, according to the two governments. Revenue generated will go to the British Treasury, while client identities remain secret.
The initialed tax agreement should be signed by both governments in the next few months and is expected to come into force in 2013, the Treasury said.
The tax on assets from the past ranges from 19 percent to 34 percent, depending on the duration of the client relationship and the initial and final amount of capital, the Swiss ministry said, without giving further details. The U.K. expects to raise more than 5 billion pounds ($8 billion) from the one-off levy.
“A few years ago, nobody would have anticipated that we would conclude an agreement with Switzerland to tackle tax evasion,” said Dave Hartnett, permanent secretary for tax at the U.K. Revenue and Customs agency, who was in Zurich to initial the deal. “We will secure significant sums of tax that some had thought we would never see.”
Fishing Not Allowed
To prevent new, undeclared funds from being deposited in Switzerland, U.K. authorities can submit requests for information that must state the name of the client, though not necessarily the bank’s name, the Finance Ministry said. The number of requests will be limited to 500 a year and so-called fishing expeditions aren’t permissible.
“The vast majority of folks are seeking peace of mind and regularizing their tax affairs,” Heather Taylor, a senior tax manager at accountancy firm Grant Thornton in Birmingham, central England, said before the accord was announced.
Switzerland is the world’s biggest center for offshore wealth with about 1.96 trillion francs of assets last year, according to Boston Consulting Group.