The current agreement envisages a withholding tax of between 19% and 34% – depending on the how long the account has been held –being deducted from the cash balances held in Swiss accounts on 31 May 2013, to compensate the UK for past UK-tax evaded on the funds. But the German authorities, who have an almost identical agreement with the Swiss Government, have negotiated a rise in the withholding tax rates to between 21% and 41% for German residents.
And John Cassidy, tax investigation and dispute resolution partner at London-based PKF (UK), says he would be surprised if the UK tax authorities didn’t increase their withholding tax rates to match the recently renegotiated German levels.
"The Government wants to claw back as much tax as it can from this deal, in the current political and economic environment," he points out.
According to Cassidy,the mechanism for raising the rate is already in place, in the form of "a new protocol to amend the UK-Swiss deal" that was included in the Budget day material released last month.
"This included a clause that allows the UK to ask for higher withholding tax rates if Germany and Switzerland agree higher rates before the end of April 2012," Cassidy says.
"I don’t think this clause was added just to fill space – it will almost certainly be used.
“Higher withholding tax rates have clearly been on the agenda for some time, and the Treasury is bound to demand that these higher withholding tax rates are applied to Swiss accounts held UK residents."
LDF the ‘cheaper option’
For those with undeclared assets in Swiss institutions, Cassidy says, the so-called the Lichtenstein disclosure facility (LDF), a tax "amnesty" scheme hammered out between the UK and Liechtenstein in 2009, "is almost always going to be the cheaper option".
“The UK-Swiss deal is already a high cost option for those who have undeclared assets in Switzerland and this will just make it even more expensive," Cassidy says.
“The only sensible reason to use the UK-Swiss deal now is to maintain your anonymity – but you have to be prepared to pay heavily for that privilege."
As reported, the UK in February announced it was extending the time frame for LDF disclosures by just over a year. It had been set to end at the end of March 2015, but now will run to April 2016.
Last month, audit, tax and business advisory firm Crowe Clark Whitehall revealed that an online survey of UK accountants it conducted showed just 38% reported having “limited knowledge” of the LDF, with a further 13% admitting they had “no knowledge” at all – even though 81% said they knew what the LDF was and were aware of the principles behind it.