Last updated 6 December 2011
Frequently Asked Questions (FAQs) added 1.1 to 1.11, 2.2 to 2.13, 3.1 and 3.2, 4.1 to 4.5
FAQs amended Q1 is now at 2.1
Answers to commonly asked questions about the Tax Agreement between the UK and Switzerland signed on 6 October 2011. The answers given below are not a substitute for the Agreement between the governments of Switzerland and the UK.
HM Revenue & Customs (HMRC) will update and/or add to these FAQs if it becomes apparent that further explanation or information would be helpful.
Please select from the FAQs set out below.
2.3 The relevant person must make a notification of option by appointed date 3. Please confirm the following understanding is correct: a notification before the Agreement enters into force is revocable; when the Agreement enters into force, any existing notification becomes irrevocable and any notification from then on is irrevocable.
2.12 When is the earliest the one off payment instruction can be made? It doesn't state it must be irrevocable. Is it possible to make an irrevocable instruction before the Agreement comes into force?
2.13 Please confirm: a criminal or civil investigation started after the one off payment instruction has been made, not concluded before appointed date 3, and where neither (c) (previous disclosure opportunities), (d) (proceeds of non tax crime) or (e) (proceeds of criminal attacks and systemic fraud) apply, is not a bar to clearance.
3.1 What is the expectation on the banks to determine whether income/gains have a UK source? Simplistically, obvious items such as UK dividends, UK bonds etc can be captured; however it may be more difficult to analyse structured products and derivatives.
The term covers assets which will be in an account which the Swiss paying agent is able to readily value and apply the provisions of the Agreement to.
They are not specifically excluded and, depending on their individual circumstances, may fall within the definition.
These are the ‘know you customer’ provisions and relevant money laundering provisions in Switzerland.
The intention is that this provision will follow the developing EUSD provisions on effective taxation.
Discretionary trusts are not excluded from the terms of the Agreement. Any beneficiary of a discretionary trust who receives a payment or other benefit from a trust account could be a relevant person for the purpose of the Agreement.
HMRC expects Swiss paying agents to use all the information they hold – including but not limited to that obtained as part of their due diligence processes.
31 May 2013 and 30 June 2013.
It means that the enquiry/investigation needs to be one where HMRC could, if required, invoke its statutory powers, for example Schedule 36 FA 2008 to obtain information.
The ways in which HMRC undertakes enquiries into tax positions is changing. An example of the type of investigation covered by this definition is the approach announced in respect of clients of HSBC Switzerland.
The process taken on identifying the residence of relevant persons is based on the approach taken for the EUSD.
HMRC would expect the Swiss paying agent to use all the information it holds in identifying the principal private address.
Swiss franc account opened in 1993 (so n = 8), cash amounts have been deposited in the account over the years and interest is credited each year.
Balance 31 December 2002 (Cb) = CHF1m
Balance 31 December 2010 (C8) = CHF2m
Balance 31 December 2012 (C10) = CHF2.1m
First calculate Cr. In this case C10 is greater than C8, but less than 1.2 x C8, so Cr = C10 = CHF2.1m
Second calculate C9’ and C10’. C9’= Cr x 103% = CHF2,163,000 and C10’ = Cr x 106% = CHF2,226,000. So ½ x (C9’ + C10’) = CHF2,194,500
T = 34% x CHF[ 2/3 x (2,100,000 – 1,000,000) + 1/3 x ((8/10 x 2,100,000) + 2/10 x 2,194,500)]
= 34% x CHF[ 733,333 + 706300] = CHF489,475
Finally, check that this sum is greater than the minimum T of 19% x Cr (CHF399,000)
It is, so the one-off payment is CHF489,475 that is approximately 23.3% of the December 2012 balance.
Assuming the one-off payment is made in full, as the C10 amount is not more than 20 per cent greater than the amount in the account at C8, the funds in the account at 31 December12 are ‘cleared’ (see Article 9(7)) - subject to the exclusions in Article 9(13).
Sterling account opened in 2007 (so n = 3), deposits in 2008 to 2011 and a large withdrawal in 2012.
Balance at 31 December 2007 (Cb) = £200,000
Balance at 31 December 2010 (C8) = £1,000,000
Balance at 31 December 2012 (C10) = £500,000
First calculate Cr. In this case C10 is less than C8, so Cr = C8 = £1,000,000
Second calculate C9’ and C10’. C9 = Cr x 103% = 1,030,000 and C10’ = Cr x 106% = £1,060,000. So ½ x (C9’ + C10’) = £1,045,000
T = 34% x £[ 2/3 x (1,000,000 – 3/8 x 200,000) + 1/3 x (3/10 x 1,000,000 + 2/10 x 1,045,000)]
= 34% x £[ 616667 + 169667] = £267,353
Finally, check that this sum is greater than the minimum T of 19% x Cr (£190,000)
It is, so the one-off payment is £267,353 that is approximately 26.7 per cent of the December 2010 balance. Assuming the one-off payment is made, the funds in the account at 31 December 2010 (£1,000,000) are ‘cleared’ (see Article 9(7)) subject to the exclusions in Article 9(13).
There is no bar in the Agreement to a person telling a paying agent to disclose one account and pay the one-off levy on another. However the accounts would need to be separate accounts rather than one being the sub account of the other. Where an account is a sub-account both would be treated in the same way by the paying agent.
Any notification which has not been otherwise withdrawn will become irrevocable when the Agreement comes into force.
Details of the process will be provided by the Swiss prior to the agreement coming into force.
Details of the calculation will be included in the certificate provided by the Swiss paying agent.
Apportionment may become important if the relevant person is subsequently investigated by HMRC. Rules on apportionment will be included in legislation included in the draft Finance Bill 2012 clauses.
The formula simply looks at the amount in the account at 31 December 2002 (or the date it was opened if later) and at 31 December 2010.
Subject to the specific rules for the period between 1 January 2011 and 31 December 2012 money taken out of the account is not included in the calculation and is not cleared.
'Outflows' are sums which were taken out of the account between 31 December 2002 and 31 December 2010. 'Inflows' are amounts which go into the same account between 1 January 2011 and 31 December 2012 which the relevant person can evidence to the Swiss paying agent equate to the outflows.
The aim of the formula is to take into account the speed of growth in the account balances, so that the faster the assets accumulate, the higher the rate that is charged. The effective tax rate is positively dependant on the growth in capital and the level of the final capital in the account (which captures deemed interest). The formula also takes account of the length of time the account has been open.
Capital stock is the account balance.
Article 15 states that where the one off payment has been wrongly levied it will be refunded. (This will be to the Swiss paying agent.)
There is no practical constraint on when the instruction can be made. However for the purposes of the Agreement it will only be treated as irrevocable following the Agreement coming into force.
Clearance will not be available where the one-off payment instruction is revocable. For the purposes of the Agreement the instruction cannot be irrevocable before the Agreement comes into force. So where a civil investigation commences after 1 January 2013 that will not be a bar to the clearance of Swiss assets if there is an irrevocable one-off payment instruction in place.
In the context of there being no clearance if the withholding tax is not paid, the expectation is that the banks will do the best they can.
The intention is that this Agreement goes wider than the EUSD and that all income and capital gains will be covered by it. To assist in this a ‘table of concordance’ will be published which provides guidance to Swiss paying agents on the UK tax treatment of a wide range of instruments.
The maximum for the first three years will be 500 per year.
The statement was given in the context of the position once the Agreement comes into force.
The statement sets out HMRC’s position in respect of those who fully comply with the Agreement and who co-operate with HMRC.
HMRC will not be providing a helpline but will be providing further guidance between now and the date when the Agreement comes into force.
As in the UK, Switzerland will need to introduce domestic legislation to give effect to the terms of the Agreement.
The expectation is that Swiss paying agents will take all reasonable steps to successfully implement the terms of the Agreement. Where the withholding tax under the Agreement is not paid, no tax clearance will be available.