British receive initial funds from tax deal

British Chancellor George Osborne has 500 million reasons to smile Keystone

The Swiss authorities have confirmed that they have transferred SFr500 million (£340 million) to Britain as part of an upfront payment included in a deal designed to tackle tax evasion that could net the British billions over the next six years.

Switzerland agreed with Britain last year to impose a one-off levy on money in Britons’ undeclared Swiss bank accounts and to tax future interest payments, with effect from January 1.

“Switzerland thereby fulfilled an obligation which is set out in the bilateral withholding tax agreement,” the Swiss finance ministry said in a statement on Tuesday. “The upfront payment guarantees the United Kingdom a minimum amount from as yet untaxed assets of UK taxpayers in Switzerland.”

The money was paid by Swiss banks to the Federal Tax Administration, which then completed the transfer to the British authorities. Another SFr800 million are still outstanding, and the total will be reimbursed to the banks once the withholding tax collected by them reaches the equivalent of SFr1.3 billion.

Austria, which signed a similar deal to the British that became effective on January 1, will not receive an upfront payment. Germany rejected a similar deal after its Senate turned down the so-called Rubik agreement with the Swiss.

Rubik agreements

Tax deals, known as Rubik accords, have been approved so far only with Britain and Austria.

Negotiations for agreements are underway with Greece and Italy, although it is unclear when accords might be signed. The Swiss finance ministry has indicated other European nations and other countries have expressed an interest in similar deals.

The Rubik principle was devised by the Association of Foreign Banks in Switzerland. The idea behind it is to separate income from wealth and hand over tax at the source to third countries, while keeping the Swiss bank account holder’s anonymity.

The inventors of the system say this strategy will also afford more protection to foreign bank employees in Switzerland from legal action by third countries.

It is hoped that guaranteed anonymity will encourage foreigners with assets being managed in Swiss banks not to close their accounts.

Pressure

All British and Austrian taxpayers with a bank account or securities deposits in Switzerland have the option of either disclosing their assets to their respective tax authorities, or paying the withholding tax deducted from their accounts and transferred anonymously back home.

Switzerland has been under pressure from the United States, Germany and Britain to clean up its private banking system, which has allowed many wealthy foreign nationals to avoid tax due to its tradition of bank secrecy.

British Chancellor (finance minister) George Osborne told parliament in London on Tuesday that a first tranche had been paid off.

“Last night HMRC [UK tax authorities] received £340 million pounds from the Swiss government, in the first installment of a deal we have struck,” he said.

“[This is] the first time in our history that money due in taxes has flowed to this country from Switzerland, rather than the other way round,” he added.

Osborne gave the information as he was facing criticism about his fiscal plans, which are already two years behind on their original goal of eliminating the country’s structural budget deficit by 2015.

The £340 million is a shade over the £330 million estimated to come from this source during the current tax year. Over £3.1 billion is expected in the next tax year from Switzerland, and total tax receipts out to 2017-2018 are seen at just over £5 billion, all which should serve to fund economic growth.

Britain has made tackling tax avoidance by companies as well as individuals a priority for its presidency this year of the G8 group of major advanced economies.