British tax authorities discover that Swiss banking is secret
We sent our detailed analysis to the UK and Swiss tax authorities, and to several private practitioners, and asked them to explain how our analysis was flawed. Nobody seemed able to.
And, as it turns out, our forecasts were proved absolutely spot on. As the Guardian reported:
"The Treasury's attempt to tax wealthy individuals who hide their assets in Switzerland was declared an embarrassing failure by experts on Friday after the Swiss authorities said it would generate only a small fraction of the expected £3.2bn haul. The Tax Justice Network campaign group said "giant loopholes" in the deal struck by the Treasury minister David Gauke and former HMRC chief David Hartnett had undermined the UK's attempt to trawl the Swiss banking system for untaxed funds."Recently the UK tax authorities were rightly hauled over the coals by the UK's Public Accounts Committee for the embarrassing shambles. As the Telegraph noted:
"Edward Troup and Jim Harra, directors of HM Revenue & Customs (HMRC), told the Public Accounts Committee that £440m had been recovered this year and £782m, in total, since an agreement was signed to exchange information on UK tax avoidance."Troup said that the £4-7 billion original forecast (later reduced to £3.2 billion in the budget forecast) was the 'best estimate' available. No it wasn't: ours was demonstrably superior, both in methodology and in eventual accuracy.
The officials' excuse for this failure? Get this:
"The HMRC officials admitted the forecasts had been “inaccurate”, but said that was due to the “secrecy” surrounding the Swiss banking system. Mr Troup said he had “conveyed our concern about the amounts we were receiving” to Swiss officials."Our emphasis added. They got less than they expected because Swiss banking is so secretive! Goodness, the UK's tax authorities sure are well-informed. If only they had asked us - or, for that matter, the taxi driver that doubtless took Troup and Harra to sign the agreement - they could have received the bombshell information that Swiss banking is, er, secretive.
To be fair, though, there was a different excuse available earlier.
"First indications from selected banks in Switzerland show that there are fewer untaxed UK assets in Switzerland than had been previously assumed. This is mainly due to the fact that many clients have resident non-domiciled status. These clients are not liable to taxation in the UK and thus do not fall under the Agreement."So the UK tax authorities, perhaps, weren't aware that a lot of rich people in the UK have non-domiciled status. It's of course unfair to expect them to have known such things.
It's complicated stuff, this!
One last point, though. When we criticise the UK tax authorities here, we are singling out the people at the top of the chain, and their political masters, for criticism. The tax authorities continue to provide a most useful service, overall, and are filled with dedicated and highly professional people performing a crucial function.
This is a matter of wider relevance. Germany's upper house of parliament thankfully threw out a similar deal for Germany, citing its uselessness - see here - but now Germany is embroiled in coalition negotiations, and a group of Swiss secrecy fanatics are trying hard to throw this diseased bone into the pot. If they succeed, Swiss bankers (who cooked up the template for these tax deals) will have gone a long way in dividing Europe, politically speaking, and sabotaging moves towards international financial transparency.
Update 2014: for more information on secrecy see here.