The full text of the agreement will not be released until it has been sanctioned by both Governments. Similar discussions between Switzerland and the UK Government have been underway for months and an announcement is imminent. Informed speculation suggests that the agreements will be similar if not identical which is a cause for some concern.
It is clear that many UK taxpayers with undisclosed accounts offshore, which were not opened via a UK bank and who are therefore eligible to make use of the attractive terms of the Liechtenstein Disclosure Facility (LDF), have been holding back from registering under the LDF in the hope that the Swiss deal will be more attractive. To counteract this, senior HMRC officials have been saying quite categorically, but to little effect, that the terms of the proposed deal with Switzerland will not be better than those of the LDF. If the two agreements are broadly similar then HMRC’s assurances are likely to prove to be absolutely correct.
One-off payment
The most important feature of the agreement with Germany is the treatment of funds which have been undisclosed for a number of years. Those affected have two stark alternatives. Either they can make an anonymous one-off payment of between 19% and 34% of the funds in question, dependent on how long they have been held and the amount of the opening and closing balances on the account. Or they can disclose their accounts direct to the tax authorities.
It is not clear how monies previously withdrawn from the accounts will be dealt with. If the undisclosed funds comprise untaxed profits diverted from a UK business and income arising from these funds, then clearly paying a top rate of 34% will be much more attractive than a full-scale serious fraud investigation which would be triggered by a disclosure, culminating in tax, say, of 40% plus penalties and interest. But there are serious drawbacks to this approach since it does not bring complete closure to the problem. Any subsequent significant repatriation of the funds into a UK bank could trigger an enquiry from HMRC. The fact that a payment had been made under the Swiss/UK agreement would not inhibit HMRC from widening their enquiry into the totality of the taxpayer’s affairs. There may, after all, be other aspects of the taxpayer’s affairs which need attention.
One aspect of a deal similar to the one just signed by Germany which would be particularly galling to those who have come forward under earlier UK disclosure initiatives and have paid tax for the maximum 20 year assessing period plus interest and a penalty of at least 10%, would be the creation of a class of UK tax evader who had ostensibly paid his or her dues in relation to untaxed funds held in Switzerland but whose identity remains unknown to HMRC.
On the assumption that the UK deal looks similar to the German one, anyone who wants to achieve finality and peace of mind might be well be advised to opt for the LDF route. But clearly such a decision cannot be made until the terms of the UK agreement are known, always bearing in mind the danger that HMRC may open an investigation on the basis of information they already hold, before the benefits of the LDF or the Swiss agreement can be claimed.
