UK-Swiss Tax Deal Rewards Those Who Hide Their Money in Switzerland
September 9th, 2011
September 9th, 2011
George Osborne says: ‘my message to those who try to hide their incomes from the Revenue in offshore bank accounts and false declarations is simple: we will find you and your money.’
A senior official at the Indian Central Board of Direct Taxes says: ‘money laundering or illegal commission are a criminal offence. So, our effort will be to not just bring back the money but also prosecute the owner.’
President Obama says: ‘if financial institutions won’t cooperate with us, we will assume that they are sheltering money in tax havens, and act accordingly. And to ensure that the IRS has the tools it needs to enforce our laws, we’re seeking to hire nearly 800 more IRS agents to detect and pursue American tax evaders abroad.’
On the face of those statements you would think that the UK, India and the US would take the same approach to tax dodging. However, despite talking tough on tax evaders, George Osborne has broken ranks with countries like the US and India and concluded a deal, branded disgraceful by Christian Aid director Loretta Minghella, that rewards those who have been avoiding paying tax in the UK on wealth held in Switzerland.
The deal requires the Swiss to levy a withholding tax on UK assets held in Switzerland, and the Swiss will pass on the money to the UK. Those holding the assets will pay a lower rate of tax than if they had declared them directly to the authorities in the UK as part of a tax return, and the UK will not be entitled to receive information about those on whom the taxes have been levied.
The upshot is that it rewards those who hide their money in Switzerland, giving them both a discount on their taxes, and allowing them to keep their finances secret. By signing up to this deal, Osborne has made sure that despite condemning those hiding their money in Switzerland, the UK authorities will not find them, nor their money, and those who declare all to the authorities will continue to have to make up the gap.
Even worse is the damage that this could do to efforts to stop tax dodging globally. The best way to stop tax dodging is for information to be shared, so revenue authorities can trace the taxes they are owed. For several years global efforts have been intensifying to require just such information sharing.
By striking this deal with Switzerland, the UK appears to be breaking ranks on these efforts, and will encourage those seeking to retain secrecy to try and get others to split too. Should this happen the worst affected will be the developing countries, as they lack the political and economic clout to get any kind of deal with Switzerland.
By striking a deal to get less than they are owed, the UK government has also made it much less likely that developing countries will ever be able to get the taxes owed to them from tax havens.
This is not an insignificant issue for developing countries: in 2008 it is estimated that illicit outflows from developing countries reached $1.26 trillion. Christian Aid estimates that developing countries lose $160bn a year in lost tax revenue – significantly more than they receive in aid.
‘If financial institutions won’t cooperate with us, we will assume that they are sheltering money in tax havens, and act accordingly.’
So why has the UK broken ranks? It’s not that the UK can claim that there aren’t other big hitters willing to fight for global action; only Germany has signed a similar deal, while countries like the US and India are committed to taking action.
The US has passed legislation requiring information on US accounts of over $50,000 held outside the US to be passed to the IRS, while India has made clear, ‘India will not go for such a treaty. Rather, we would prefer criminal investigation and action thereof’.
The world’s biggest economy and one of the fastest growing emerging economies are committed to getting 100% of what they are owed, yet Osborne has gone it alone and settled for significantly less.
If Osborne is serious when he says that tax evaders are ‘leeches on society’ he needs to make it clear that he is committed to taking action that will stop them, both in the UK and globally.
The only way to do that remains a multilateral solution. The G20 is the best place to start, and a firm commitment to ending tax haven secrecy by the G20 would begin to repair the damage Osborne has caused.
Call on David Cameron, Nick Clegg and Nicolas Sarkozy to end tax haven secrecy at this year’s G20. Click here!
Cross-posted from the Christian Aid blog…