Top tax expert Philip Baker skewers UK-Swiss tax deal
This video entitled Banking Secrecy, Tax Evasion and the "Rubik Agreements" - A New International Tax Order? was presented by Philip Baker of the University of London, also a QC at Gray's Inn Tax Chambers. Baker is a highly respected UK tax professor, at the Università Bocconi, Milan, on February 17th. We apologise for the delay in publishing this; we've only just come across it, courtesy of Sol Picciotto. (For further background on the deals see our earlier reports.)
Baker looks at the UK-Switzerland Tax Cooperation Agreement, the zombie that we have sought to kill several times, but refuses (so far) to die. We hadn't seen this video, but it is a superb, funny and caustic look at the tax agreement, from someone who (presumably) isn't, like most tax advisers working on this issue, conflicted. Beneath it we provide a few choice sentences, followed by a full transcript (with a few bits left out; check against delivery for the proper version.)
Here are a few choice sentences from Baker:
Introduction
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People have commented: it has more loopholes than an Emmental cheese. If the assets are held under a discretionary agreement, you cannot identify the beneficial owners. A discretionary trust, foundation, has no beneficial owner. Corporate assets: Unless you can effectively look through the company – are not included. Assets held by an insurance company, in an insurance wrapper, are excluded. The other night I happened to attend a lecture in London, I spoke to the person next to me about the Switzerland, and she said ‘oh, we have a solution: a liechtenstein insurance wrapper, if you want to keep evading tax.
(Note: these are just some of the loopholes we identified; see more here.)
The revenue projections
The UK government expects it to yield 4-7 billion, between 10 and 20 percent of our tax gap, but they don’t say over what period. Over the next year, the next 10 years, or the next 100 years? Most people think it is hopelessly, hopelessly, optimistic. Previous disclosure facilities didn’t even raise half a billion. Why should we expect so much more from this one?
The big question mark is whether the UK will ever get any more than that. The general view is: no, they won’t. That is all they will ever get out of this agreement.
The tax rates
The one-off payment has an incomprehensible formula, 19-34%, with the average likely to be about 22%. Note: if I look over the past ten years, I have paid about 50 to 60 percent of what I charge my clients. If I had known I could get away paying 22 percent, oh I wish I had gone to Switzerland ten years ago.
The morality of it all
It guarantees future Swiss bank secrecy. If I put my money into a Liechtenstein insurance wrapper, I keep my account secret. Why? Why should the UK government wish to preserve Swiss bank secrecy? No-one has explained to me why we should have this. I bank in the UK and France, and if I am investigated by either authority, I know they can look at my accounts, and I accept that. I expect them to keep that information inside the Revenue, and not leak it into the public domain.
On the legality
Is it compatible to EU law? It is a big question of whether the UK government even thought about EU law when they entered into this agreement - and what the quality is of the advice they are getting.
On Switzerland promising to help identify where the money has escaped to
There will be a joint UK-Swiss commission to oversee it, and if people take their money out of Switzerland and send it elsewhere, then the Swiss will identify the ten major recipients. Professor Obserson: can I ask you to be a witness please? I am now handing you a list of the ten countries to which the money is going to move. I know, and you know, and he knows what those are. If I get all ten right, xavier will you pay me 10 swiss francs? . . .
(a short pause)
I don’t think Xavier is dissenting from my list.
To conclude (in front of an Italian audience:)
The big question is: will other countries follow suit? Other countries that have been mentioned include Greece, Italy, which may enter similar agreements. We all do silly things from time to time.
FULL TRANSCRIPT (Note that this is very close to the original but words may have been missed here and there; you can check for accuracy against the original.)
I have been asked to look at the UK Switzerland co-operation agreement. (Background: he discusses the UK tax gap, with estimates ranging at £35 billion at the low end, to £120 billion at the high end. He discusses the fact that the UK doesn’t do tax amnesties but has disclosure facilities, which typically raise relatively modest sums. He discusses the Liechtenstein Disclosure Facility (LDF)
We don’t do amnesties in the UK, we never have, and we still don’t. But what we do have are disclosure facilities, where you can come forward, pay the tax, pay a fixed penalty, you don’t go to jail, and you regularise the past. We have had a number of these facilities – we had one between 07-08, that raised £400m in undisclosed taxes, a relatively low figure. We backed that up by disclosure from a significant number of banks with overseas branches: 146 UK banks disclosed information about offshore branch accounts, that led to a second new disclosure facility starting in 2009 which so far has raised a tiny amount, £85 million.
We have a special arrangement with Liechtenstein: this started with the theft of information about liechtenstein bank accounts bought by the German secret service, then sold on to the British. So we reached an agreement with the Liechtenstein government to introduce a disclosure facility for just over five years. Someone who uses this facility pays 40% at an average rate, or less if they can show their tax would be less. They pay a 10 percent penalty, they have a guarantee of non-prosecution, it is currently available, and amazingly it applies to worldwide activities. Anyone who wants to actually use this can go to Liechtenstein now, create a “meaningful relationship” – that is the term used – with a Liechtenstein banker, then go to the Revenue and you can legitimise your money, anywhere in the world. So: I have been evading tax for years, I have my money in Panama, I have never been to Liechtenstein, I don’t even know where it is - but I form a ‘meaningful relationshiip’ with a Liechtenstein banker, then go to UK revenue and say “I would like to regularise this, would you give me my get out of jail free card?” And you get that under this facility.
8:00
So the UK doesn’t do amnesties – we do disclosure facilities, we don’t have any constitutional restriction on any of these arrangements, though perhaps we ought to be more aware than we are about EU law. We do traditonally settle many of our tax disputes by agreements, and we seldom prosecute (though the Revenue is not the only body that can prosecute tax matters.) Importantly, in the last year there has been a great deal of disquiet about the Revenue settling tax disputes for a fraction of the tax due. Vodafone, Goldman Sachs, big companies that settled large tax bills with relatively small payments. This is all background to the agreement.
9:40
Here is a picture of Dave Hartnett, head of UK revenue, putting his signature, and Frau Schlumpf walking away looking like a very happy lady, walking away with the Crown Jewels.
So what did the agreement contain?
There are actually five parts to the document
a) the main agreement
b) Joint declaration concerning equivalence, saying that the agreement will have ‘an enduring effect, equivalent to the outcome that would be achieved through an agreement to exchange information on an audomatica basis. This is supposed to be the same as automatic exchange. I will leave you to judge whether that is true or not.
c) A declaration on stolen data. The UK promises that in the future, we will not actively seek to acquire data “stolen” from Swiss banks. We have acquired stolen data in the past: you may ask whether it is right or not, but clearly Swiss banks don’t like it.
d) Side letter about criminal investigations, saying that somebody who uses this Swiss facility is highly unlikely to be subject to a criminal investigation by HMRC. That is not an absolute guarantee. With Li, you get an absolute guarantee. Frau Schlumpf missed a bit here.
e) Memorandum on financial services by Swiss firms. Swiss firms believe they have not had full market access, this memo explains how Swiss banks should go about marketing financial services.
The main core of it, though, is the agreement signed on Oct 6, not yet in force, so you can’t yet use this facility.
12:00
It will probably come in force on Jan 1 next year. The key implementation is by the Swiss bank, the Swiss paying agent. The taxpayer remains anonymous. The bank does everything on their behalf. It applies to assets that were already in Switzerland at the end of Dec 2010, and have remained there. So you can’t move yourself into this agreement, you have to have been evading tax in Switzerland at the end fo 2010, then you can use it. It only applies to individuals who are the beneficial owners of assets in Switzerland.
People have commented: it has more loopholes than an Emmental cheese. If the assets are held under a discretionary agreement, you cannot identify the beneficial owners. A discretionary trust, foundation, has no beneficial owner. Corporate assets: Unless you can effectively look through the company – are not included.
Assets held by an insurance company, in an insurance wrapper, are excluded. The other night I happened to attend a lecture in London, I spoke to the person next to me about the Switzerland, and she said ‘oh, we have a solution: a liechtenstein insurance wrapper, if you want to keep evading tax. (That also by the way means having a ‘meaningful relationship’ with a liechtenstein insurance person.)
15:20
What are the elements of the agreement? Very similar to the agreement with Germany.
The first element is clearing the past, by the custyomer telling the bank to exercise one of two options:
a) the one off payments
b) disclosing the customer’s details to the UK government.
The one-off payment has an incomprehensible formula, 19-34%, average likely to be about 22%. Note: if I look over the past ten years, I have paid about 50 to 60 percent of what I charge my clients. If I had known I could get away paying 22 percent, oh I wish I had gone to Switzerland ten years ago.
It applies to all major direct taxes, and as a sign of ‘good faith’, the Swiss paying agents have agreed to apy the UK government an up front payment of CHF 500m in advance. The big question mark is whether the UK will ever get any more than that. The general view is: no, they won’t. That is all they will ever get out of this agreement.
17:20
Second element: if you choose secrecy, and don’t disclose, then the cost of that is that tax will be withheld by the Swiss bank on different types of income, and paid over to the UK. The rate is slightly less than the top UK rate of 50 Percent; it’ll be 48 percent withheld; dividends, other income have other rates.
The third element of the agreement is co-operation between the Swiss authorities and the UK, we already have provision under our treaty for exchange on request, that is now elaborated: the UK can request information if they have identified a tax risk and have identified and notified the taxpayer they are investigating. But if that taxpayer has elected to have the one-off payment and the WHT, then no information is to be supplied. So you maintain your secrecy, by agreeing to have a one-off payment and the Withholding Tax.
There is a maximum number of requests that can be made: 500, but if we make bad requests, and they are unsuccessful, the number drops. If we make 100 requests and less than one third are successful, then our maximum drops for future years. So we can only make good requests, or we are penalised.
Swiss banks promise not to encourage the use of artificial arrangements for the sole purpose of tax avoidance. You might have thought it was the purpose of bankers to bank, rather than sell artificial tax avoidance arrangements: they promise not to do that in future. Swiss banks will be audited to see if they are maintaining this, there will be a joint UK-Swiss commission to oversee it, and if people take their money out of Switzerland and send it elsewhere, then the Swiss will identify the ten major recipients.
Professor Obserson: can I ask you to be a witness please? I am now handing you a list of the ten countries to which the money is going to move. I know, and you know, and he knows what those are. If I get all ten right, xavier will you pay me 10 swiss francs, If I get none of them right, I will pay you 100 pounds.
(a short pause)
I don’t think Xavier is dissenting from my list.
Comments:
the UK government expects it to yield 4-7 billion, between 10 and 20 percent of our tax gap, but they don’t say over what period. Over the next year, the next 10 years, or the next 100 years? Most people think it is hopelessly, hopelessly, optimistic. Previous disclosure facilities didn’t even raise half a billion. Why should we expect so much more from this one?
It guarantees future Swiss bank secrecy. If I put my money into a Li insurance wrapper, I keep my account secret. Why? Why should the UK government wish to preserve Swiss bank secrecy? No-one has explained to me why we should have this. I bank in the UK and France, and if I am investigated by either authority, I know they can look at my accounts, and I accept that. I expect them to keep that information inside the revenue, and not leak it into the public domain.
There are major loopholes to the agreement. Big question mark is whether people will actually use this, given that the Li facility is so much more attractive, it is now available and gives a guarantee of no prosecution, but it doesn’t keep secrecy. It does give disclosure.
Is it compatible to EU law? It is a big question of whether the UK government even thought about EU law when they entered into this agreement, and what the quality is of the advice they are getting.
Is the UK way better? Is it better to prosecute a few Swiss bankers from time to time, pour encourager les autres. Candide. The big question is: will other countries follow suit? Mentioned Greece, Italy, may enter similar agreements. We all do silly things from time to time. Will you follow suit on this question.
Last comment: we have the agreement, but we need legislation in parliament to support it. That legislation will be passed, the UK government has a majority, but it is a question of how much damage it may do to them if they push ahead with this agreement. It is not an absolute certainty we will have this agreement.
Baker looks at the UK-Switzerland Tax Cooperation Agreement, the zombie that we have sought to kill several times, but refuses (so far) to die. We hadn't seen this video, but it is a superb, funny and caustic look at the tax agreement, from someone who (presumably) isn't, like most tax advisers working on this issue, conflicted. Beneath it we provide a few choice sentences, followed by a full transcript (with a few bits left out; check against delivery for the proper version.)
Here are a few choice sentences from Baker:
Introduction
-->
Here is a picture of
Dave Hartnett, head of UK revenue, putting his signature, and Frau Schlumpf
walking away looking like a very happy lady, walking away with the Crown
Jewels.
Loopholes
(Note: these are just some of the loopholes we identified; see more here.)
The revenue projections
The UK government expects it to yield 4-7 billion, between 10 and 20 percent of our tax gap, but they don’t say over what period. Over the next year, the next 10 years, or the next 100 years? Most people think it is hopelessly, hopelessly, optimistic. Previous disclosure facilities didn’t even raise half a billion. Why should we expect so much more from this one?
The big question mark is whether the UK will ever get any more than that. The general view is: no, they won’t. That is all they will ever get out of this agreement.
The tax rates
The one-off payment has an incomprehensible formula, 19-34%, with the average likely to be about 22%. Note: if I look over the past ten years, I have paid about 50 to 60 percent of what I charge my clients. If I had known I could get away paying 22 percent, oh I wish I had gone to Switzerland ten years ago.
The morality of it all
It guarantees future Swiss bank secrecy. If I put my money into a Liechtenstein insurance wrapper, I keep my account secret. Why? Why should the UK government wish to preserve Swiss bank secrecy? No-one has explained to me why we should have this. I bank in the UK and France, and if I am investigated by either authority, I know they can look at my accounts, and I accept that. I expect them to keep that information inside the Revenue, and not leak it into the public domain.
On the legality
Is it compatible to EU law? It is a big question of whether the UK government even thought about EU law when they entered into this agreement - and what the quality is of the advice they are getting.
On Switzerland promising to help identify where the money has escaped to
There will be a joint UK-Swiss commission to oversee it, and if people take their money out of Switzerland and send it elsewhere, then the Swiss will identify the ten major recipients. Professor Obserson: can I ask you to be a witness please? I am now handing you a list of the ten countries to which the money is going to move. I know, and you know, and he knows what those are. If I get all ten right, xavier will you pay me 10 swiss francs? . . .
(a short pause)
I don’t think Xavier is dissenting from my list.
To conclude (in front of an Italian audience:)
The big question is: will other countries follow suit? Other countries that have been mentioned include Greece, Italy, which may enter similar agreements. We all do silly things from time to time.
FULL TRANSCRIPT (Note that this is very close to the original but words may have been missed here and there; you can check for accuracy against the original.)
I have been asked to look at the UK Switzerland co-operation agreement. (Background: he discusses the UK tax gap, with estimates ranging at £35 billion at the low end, to £120 billion at the high end. He discusses the fact that the UK doesn’t do tax amnesties but has disclosure facilities, which typically raise relatively modest sums. He discusses the Liechtenstein Disclosure Facility (LDF)
We don’t do amnesties in the UK, we never have, and we still don’t. But what we do have are disclosure facilities, where you can come forward, pay the tax, pay a fixed penalty, you don’t go to jail, and you regularise the past. We have had a number of these facilities – we had one between 07-08, that raised £400m in undisclosed taxes, a relatively low figure. We backed that up by disclosure from a significant number of banks with overseas branches: 146 UK banks disclosed information about offshore branch accounts, that led to a second new disclosure facility starting in 2009 which so far has raised a tiny amount, £85 million.
We have a special arrangement with Liechtenstein: this started with the theft of information about liechtenstein bank accounts bought by the German secret service, then sold on to the British. So we reached an agreement with the Liechtenstein government to introduce a disclosure facility for just over five years. Someone who uses this facility pays 40% at an average rate, or less if they can show their tax would be less. They pay a 10 percent penalty, they have a guarantee of non-prosecution, it is currently available, and amazingly it applies to worldwide activities. Anyone who wants to actually use this can go to Liechtenstein now, create a “meaningful relationship” – that is the term used – with a Liechtenstein banker, then go to the Revenue and you can legitimise your money, anywhere in the world. So: I have been evading tax for years, I have my money in Panama, I have never been to Liechtenstein, I don’t even know where it is - but I form a ‘meaningful relationshiip’ with a Liechtenstein banker, then go to UK revenue and say “I would like to regularise this, would you give me my get out of jail free card?” And you get that under this facility.
8:00
So the UK doesn’t do amnesties – we do disclosure facilities, we don’t have any constitutional restriction on any of these arrangements, though perhaps we ought to be more aware than we are about EU law. We do traditonally settle many of our tax disputes by agreements, and we seldom prosecute (though the Revenue is not the only body that can prosecute tax matters.) Importantly, in the last year there has been a great deal of disquiet about the Revenue settling tax disputes for a fraction of the tax due. Vodafone, Goldman Sachs, big companies that settled large tax bills with relatively small payments. This is all background to the agreement.
9:40
Here is a picture of Dave Hartnett, head of UK revenue, putting his signature, and Frau Schlumpf walking away looking like a very happy lady, walking away with the Crown Jewels.
So what did the agreement contain?
There are actually five parts to the document
a) the main agreement
b) Joint declaration concerning equivalence, saying that the agreement will have ‘an enduring effect, equivalent to the outcome that would be achieved through an agreement to exchange information on an audomatica basis. This is supposed to be the same as automatic exchange. I will leave you to judge whether that is true or not.
c) A declaration on stolen data. The UK promises that in the future, we will not actively seek to acquire data “stolen” from Swiss banks. We have acquired stolen data in the past: you may ask whether it is right or not, but clearly Swiss banks don’t like it.
d) Side letter about criminal investigations, saying that somebody who uses this Swiss facility is highly unlikely to be subject to a criminal investigation by HMRC. That is not an absolute guarantee. With Li, you get an absolute guarantee. Frau Schlumpf missed a bit here.
e) Memorandum on financial services by Swiss firms. Swiss firms believe they have not had full market access, this memo explains how Swiss banks should go about marketing financial services.
The main core of it, though, is the agreement signed on Oct 6, not yet in force, so you can’t yet use this facility.
12:00
It will probably come in force on Jan 1 next year. The key implementation is by the Swiss bank, the Swiss paying agent. The taxpayer remains anonymous. The bank does everything on their behalf. It applies to assets that were already in Switzerland at the end of Dec 2010, and have remained there. So you can’t move yourself into this agreement, you have to have been evading tax in Switzerland at the end fo 2010, then you can use it. It only applies to individuals who are the beneficial owners of assets in Switzerland.
People have commented: it has more loopholes than an Emmental cheese. If the assets are held under a discretionary agreement, you cannot identify the beneficial owners. A discretionary trust, foundation, has no beneficial owner. Corporate assets: Unless you can effectively look through the company – are not included.
Assets held by an insurance company, in an insurance wrapper, are excluded. The other night I happened to attend a lecture in London, I spoke to the person next to me about the Switzerland, and she said ‘oh, we have a solution: a liechtenstein insurance wrapper, if you want to keep evading tax. (That also by the way means having a ‘meaningful relationship’ with a liechtenstein insurance person.)
15:20
What are the elements of the agreement? Very similar to the agreement with Germany.
The first element is clearing the past, by the custyomer telling the bank to exercise one of two options:
a) the one off payments
b) disclosing the customer’s details to the UK government.
The one-off payment has an incomprehensible formula, 19-34%, average likely to be about 22%. Note: if I look over the past ten years, I have paid about 50 to 60 percent of what I charge my clients. If I had known I could get away paying 22 percent, oh I wish I had gone to Switzerland ten years ago.
It applies to all major direct taxes, and as a sign of ‘good faith’, the Swiss paying agents have agreed to apy the UK government an up front payment of CHF 500m in advance. The big question mark is whether the UK will ever get any more than that. The general view is: no, they won’t. That is all they will ever get out of this agreement.
17:20
Second element: if you choose secrecy, and don’t disclose, then the cost of that is that tax will be withheld by the Swiss bank on different types of income, and paid over to the UK. The rate is slightly less than the top UK rate of 50 Percent; it’ll be 48 percent withheld; dividends, other income have other rates.
The third element of the agreement is co-operation between the Swiss authorities and the UK, we already have provision under our treaty for exchange on request, that is now elaborated: the UK can request information if they have identified a tax risk and have identified and notified the taxpayer they are investigating. But if that taxpayer has elected to have the one-off payment and the WHT, then no information is to be supplied. So you maintain your secrecy, by agreeing to have a one-off payment and the Withholding Tax.
There is a maximum number of requests that can be made: 500, but if we make bad requests, and they are unsuccessful, the number drops. If we make 100 requests and less than one third are successful, then our maximum drops for future years. So we can only make good requests, or we are penalised.
Swiss banks promise not to encourage the use of artificial arrangements for the sole purpose of tax avoidance. You might have thought it was the purpose of bankers to bank, rather than sell artificial tax avoidance arrangements: they promise not to do that in future. Swiss banks will be audited to see if they are maintaining this, there will be a joint UK-Swiss commission to oversee it, and if people take their money out of Switzerland and send it elsewhere, then the Swiss will identify the ten major recipients.
Professor Obserson: can I ask you to be a witness please? I am now handing you a list of the ten countries to which the money is going to move. I know, and you know, and he knows what those are. If I get all ten right, xavier will you pay me 10 swiss francs, If I get none of them right, I will pay you 100 pounds.
(a short pause)
I don’t think Xavier is dissenting from my list.
Comments:
the UK government expects it to yield 4-7 billion, between 10 and 20 percent of our tax gap, but they don’t say over what period. Over the next year, the next 10 years, or the next 100 years? Most people think it is hopelessly, hopelessly, optimistic. Previous disclosure facilities didn’t even raise half a billion. Why should we expect so much more from this one?
It guarantees future Swiss bank secrecy. If I put my money into a Li insurance wrapper, I keep my account secret. Why? Why should the UK government wish to preserve Swiss bank secrecy? No-one has explained to me why we should have this. I bank in the UK and France, and if I am investigated by either authority, I know they can look at my accounts, and I accept that. I expect them to keep that information inside the revenue, and not leak it into the public domain.
There are major loopholes to the agreement. Big question mark is whether people will actually use this, given that the Li facility is so much more attractive, it is now available and gives a guarantee of no prosecution, but it doesn’t keep secrecy. It does give disclosure.
Is it compatible to EU law? It is a big question of whether the UK government even thought about EU law when they entered into this agreement, and what the quality is of the advice they are getting.
Is the UK way better? Is it better to prosecute a few Swiss bankers from time to time, pour encourager les autres. Candide. The big question is: will other countries follow suit? Mentioned Greece, Italy, may enter similar agreements. We all do silly things from time to time. Will you follow suit on this question.
Last comment: we have the agreement, but we need legislation in parliament to support it. That legislation will be passed, the UK government has a majority, but it is a question of how much damage it may do to them if they push ahead with this agreement. It is not an absolute certainty we will have this agreement.
posted by TJN at 4:08 am
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