EC queries UK-Swiss tax deal

Switzerland announced yesterday that it had signed a protocol amending last October’s loophole-riddled “Rubik” tax deal with the United Kingdom (Germany has an almost identical deal with Switzerland, which I have commented on before; I understand that the German domestic opposition to the deal is much stiffer, and no deal is imminent.) The Swiss government said that with the new protocol,

The concerns of the EU Commission regarding compatibility with EU law have been removed.

The Financial Times analysed it this way:

“Officials signed a protocol in Brussels that will modify the deal so it is compatible with existing EU laws on evasion.”

I asked the European Commission if this is true, and got this reply:

“The Swiss press release is its own interpretation of the situation – it’s not for the Swiss government to profess the Commission’s position.
. . .
For the moment we don’t have a reaction, because we were only informed about the revised agreement being signed at midday today. So we’ll have to see the exact wording first.
. . .
We’d hope though that it would reflect the good discussions that the Commission has had with UK over the past months, from which we believe there was a common understanding on what needs to be changed in these agreements to make them compatible with EU law. Commissioner Semeta was extremely clear in his letter to Member States on 5 March as on the parameters that Member States must respect in such bilateral agreements with CH. He remains firm on that.”

And European Commission President José Manuel Durão Barroso said:

“On the tax question I want to tell you one thing – the Commission will never accept a bilateral agreement by a member state with a third party like Switzerland if it does not fully respect community law. So we will look at these agreements and we will make sure that community law is fully respected.”

(that was translated from the original: “Sur la question fiscale je veux vous dire une chose – la Commission n’acceptera jamais un accord bilatéral d’un Etat membre avec un pays tiers comme la Suisse, s’il n’est pas fait dans le plein respect du droit communautaire. Donc, nous allons regarder ces accords et nous allons nous assurer que le respect du droit communautaire est absolu.”

So it is fair to say that this UK agreement is not in the clear yet. But it might be: let us see what the European Commission has to say when they have had a proper look at it.

What is clear is that although there is a new provision for inheritance taxes, which on the face of it is an improvement, the outrageous and often explicit loopholes that were contained in the original deal remain largely intact. For instance, the new protocol, in Article 2h), says:

“An individual resident in the United Kingdom is not considered to be a rele- vant person with regard to assets of associations of persons, asset structures, trusts or foundations, if it is not possible to ascertain the beneficial owner- ship of such assets, e.g. due to the discretionary nature of the arrangement.”

What that means, in plain English, is that if a UK taxpayer puts their assets in a discretionary trust, for example, then they can keep their assets in a Swiss bank and dodge the Rubik deal entirely: still keeping your assets secret, while paying no tax on it (for more details on how this works, and for a fuller look at all the loopholes, see Section 3.1 here). This clause is so explicit that it is equivalent to planting a flag in the protocol and saying ‘evade me here.’ (And, for the avoidance of doubt, it applies to the new inheritance tax provision too.) Tax advisers up and down the country will be salivating at the prospect of setting up the new structures to help their wealthy clients evade tax this way.

This is a sweetheart deal, cooked up between Swiss bankers and Dave Hartnett, the disgraced (and now retiring) head of UK Customs and Revenue (HMRC.) This poisonous deal was presented to the UK public immediately ahead of budget day, which means it would get largely ignored by the country’s journalists. And the coverage has consequently been pretty patchy and unquestioning.