On Tuesday 6 May 2014, Switzerland, the world’s largest offshore financial centre, agreed to sign up to the OECD model for the automatic exchange of information. This means that the Swiss authorities will be required to provide details of Swiss assets held by UK residents.
The announcement follows the US focus on those Swiss banks that had purportedly used secrecy laws to help US citizens evade US taxes. In 2009, for example, UBS admitted liability and paid $780m in fines and penalties.
It would seem that the international financial burden of maintaining banking secrecy now outweighs the economic advantage to Switzerland of retaining the secrecy laws. There is a worldwide momentum here as 47 countries have now signed up to the Global Automatic information agreement, and the list now includes Switzerland, Liechtenstein, Jersey and Guernsey, all of which have been previously named as tax havens.
Singapore, which holds over $2tn in offshore assets, has also signed up to the new global standard. Singapore has also signed a new tax information sharing agreement with the US, which will take effect from 1 July 2014.
The new Common Reporting Standard (CRS) utilises existing legal gateways to automatically exchange information – irrespective of whether or not the individuals concerned have evaded tax. As such, the previously guaranteed anonymity that came with having a Swiss bank account will no longer be possible.
The information to be shared includes account balances, interest and dividends paid into the account and any deposits, such as sales proceeds, relevant for capital gains taxes. Financial companies will also be required to identify the ultimate beneficiaries of shell companies, trusts and similar legal arrangements.
A key issue for UK residents is that the OECD guidelines are based on residency. This means that HMRC will be made aware of all offshore assets held in participating jurisdictions by individuals resident in the UK, regardless of the individual’s domicile and whether any UK tax is due on these assets.
As a result of this step forward in the fight against tax evasion, it is expected that more individuals will be coming forward to voluntarily disclose previously hidden offshore assets. Many European countries are therefore considering setting up disclosure facilities such as the one HMRC has with Liechtenstein in order to manage the expected influx of disclosures.
There is added pressure for those who have recently been advised by their Swiss banks that despite suffering the one-off payment from their accounts in 2013 under the Swiss-UK agreement, they will no longer be able to maintain anonymity for the account holders. Those affected by this announcement should seek specialist advice to better understand the implications of their information being passed to HMRC and how to minimise the risk of an HMRC investigation into their tax affairs.