Financial Transparency Coalition

We have had good press coverage for yesterday’s UK-Swiss tax deal analysis, which reveals how the UK government’s claims that it will net 4-7 billion pounds in tax revenues are fatally flawed. See, for example:

• Swiss-U.K. Tax Agreement May Be ‘Revenue-Negative,’ Group Says – Bloomberg
• Swiss tax deal could end up costing UK – Guardian
• ‘Fatal flaws’ in UK-Swiss tax deal attacked – Financial Times
• Revealed: Loopholes in Swiss tax deal mean £7bn windfall could be lost – Bureau of Investigative Journalism.
• Rubik agreements with Switzerland draw barrage of criticism – Europolitics
• EU-tax deals in danger 20 min (rough web translation here)
• EU tax chief flags up Swiss deals Swiss Info

We are told that we also got a good discussion on the BBC’s flagship Today programme yesterday.

Of course (of course!) we have had some predictably lame responses to it. The first thing we note is that nobody so far has picked any holes in it, technically speaking. It is early days, of course, and there’s not much space in a newspaper to do so, but we are confident in our analysis.

Let’s start with slipperiest attempt to rebut our story, from the Swiss Bankers’ Association. Here’s the first part:

“There is no legal way for a British person to remain entitled to his or her assets in Switzerland in any way while at the same time evading identification,” Sindy Schmiegel Werner, head of U.K. communications at the SBA, told Bloomberg News.

Now if ever there were weasel words, these are them. Tax evaders can get round this deal by escaping being a ‘beneficial owner’. They can find ways in which they are no longer legally entitled to the asset using the devious structures of offshore – discretionary trusts, insurance wrappers, foundations and so on – while in reality they still control the assets. And hey presto! you are outside the deal’s scope. See Sections 3.1 or 3.2 to get a better flavour of this. It can be difficult to get one’s head around it, at first.

In short, the SBA is deliberately missing the point. They know they are missing the point, but the shame is that many people who aren’t familiar with the devious world of offshore trusts and their like will fall for these words. The next thing the SBA says is even more laughable.

“Banks will not actively support their clients to withdraw their assets from Switzerland”

Right. Of course. We should trust them. And through that word ‘actively’ we will see a coach and horses drive, laden with British taxpayers’ money. We won’t actively support them. But we won’t, ahem, be averse to letting them do this, and we might on occasion whisper in their ears. Or something like that.

In short, this is a laughable set of responses from the SBA, and our study stands intact.

The next point comes from Vanessa Houlder of the FT.

“Much of the disagreement over the merits of the deal revolves around the likelihood of Switzerland ever providing automatic exchange of information.”

Absolutely false. It is important to understand this and get the message out there. First, our analysis is designed to compare like for like: i.e. looking at how Switzerland is currently applying a withholding tax, and drawing conclusions from that. We then write about the European Savings Tax Directive as an almost incidental point: things would be far better if the current proposed amendments – very beefy changes that are currently being undermined by the UK-Swiss and UK-German deals – came into force. But these amendments are most fundamentally about taxation, and less about automatic information exchange. The FT simply misunderstood the whole point.

Next, we have a response from the UK’s HMRC.

“Revenue insiders said the TJN analysis missed the point. If tax evaders chose to exploit loopholes in the deal, sources said, they would remain open to prosecution and huge penalties.”

And they didn’t face prosecution and huge penalties before? What has changed here? Let’s be clear about this. This is not a representative group of the UK taxpayer population. The assets that are in question are the assets of people who have already decided to break the law and evade tax. The fact that instead of facing a 20% withholding tax under the EU Savings Tax Directive – which is only a modest incentive to evade – this deal will face them with a super-massive 20-35% capital charge (see the report for more details) on the absolute value of their capital. The incentive to escape will be massively, massively higher under the UK-Swiss tax deal. Our calculations show beyond reasonable doubt that it is inconceivable that they will raise more than one billion pounds – most likely a small fraction of that. We think it’s unlikely the UK will receive anything beyond the £350 million (500 million Swiss Francs) that Switzerland is due to hand over to the UK in a few days’ time as a down-payment to protect their secrecy.

And if HMRC comes back and says ‘we have expanded co-operation with Switzerland and the possibility of making up to 500 requests per year- just remember than between 2004 and 2010 the UK made an average of less than three requests to Switzerland per year — and Switzerland has made an average of precisely zero spontaneous exchanges of information back to the UK.

Do leopards change their spots? Er, not that much. HMRC’s claims are laughable.

Next, we have had Bill Dodwell of Deloitte, a regular opponent of TJN, dismissing our study. We have just rung up Bill Dodwell but he didn’t answer. We want answers from him: what exactly is it that he objects to?

And if anyone wants to read more on the politics of all this, read this article in Europolitics (though we wouldn’t quite agree with all the technical analysis, the politics is very interesting.) The article starts like this – this is dynamite.

The European Commission is planning to attack the tax agreements concluded by Switzerland with Germany and the United Kingdom, on 25 October in Strasbourg. It finds that Berlin and London have encroached upon the Union’s powers by negotiating bilateral arrangements with Berne that interfere with savings taxation rules.
. . .
Commissioner Semeta plans to take a very hard line and to denounce an abuse of power by Germany and the UK.

Fiery stuff. This happens to confirm Section 4.4 of our analyis. These ‘Rubik’ agreements are a disaster from start to finish. HMRC should simply give in, and cancel them, to save further embarrassment.

Cross-posted with permission from the TJN Blog …