The U.K. and Switzerland have reached an agreement related to tax evasion by the U.K. citizens through undeclared Swiss accounts. The deal, which is similar to that reached between Switzerland and Germany, needs to be signed by both the governments and will expectedly take effect in 2013. The deal could result in U.K. receiving over 5 billion pounds ($8 billion) from the one-off levy.
Deal Details
According to the deal terms, Swiss banks’ account holders who are U.K. residents can retrospectively tax their existing Switzerland banking relationships either by making a one-off tax payment or by divulging their accounts. A tax of 19% to 34% will be levied on the assets held by them in Swiss banks and the exact amount will be determined based on the client relationship period, as well as the initial and final amount of the capital.
A final withholding tax would be levied on future investment and capital gains. The tax rates range from 27% to 48%, and depend on the capital income class. It is a tax at source, and the proceeds would be passed on to the British authorities by Switzerland. Notably, the tax rates are slightly below the regular marginal UK tax rates.
Swiss banks will make a payment of CHF 500 million ($630 million) to the U.K. government so as to guarantee a minimum income from the retrospective taxation of existing banking relationships. These funds would be adjusted with the incoming tax payments and then refunded to the banks.
The U.K. authorities can also submit request for information in an effort to prevent new, undeclared funds from being deposited in Switzerland. Such requests must state the client’s name but not necessarily the name of the bank. The number of such requests would, however, be limited to 500 a year.
Our Take
Over the years, Switzerland banks have enjoyed large inflows of deposits from its clients across the world for serving as a tax haven. However, with a global economic slowdown, countries are increasingly facing budget deficit problems and thus cracking on every possible way to increase their revenues.
Swiss banks such as UBS AG (UBS) and Credit Suisse Group (CS) have hit headlines, with the U.S. and other European countries increasing their pressure on these banks to divulge client details of the respective countries’ citizens so as catch hold of the tax evaders.
Ultimately, the transfer of details of thousands of clients had to be made. This dilution of secrecy resulted in worried clients looking for a safer refuge and resulting in significant client money outflows from the Swiss banks. The latest agreement reached between the U.K. and Switzerland could also lead to the outflow of U.K. client’s money from the Swiss banks.
The shares of UBS AG currently retain a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating. However, the shares of Credit Suisse retain a Zacks #3 Rank, which implies a short-term ‘Hold’ rating.
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