The purpose the Agreement is unobjectionable: it sets out to balance HMRC’s need to collect undeclared tax with the Swiss banks’ need to maintain confidentiality. The method adopted consists of a one-off levy covering the past and a mechanism for deducting withholding tax at source going forward. The levies and deductions under the Agreement are made by the ‘Swiss paying agent’ – that is the bank or other custodian - and are their responsibility.
The agreement creates potential problems for all Swiss account holders because its default options are to:
- charge a levy of up to 41% of assets held through Swiss intermediaries; and
- impose withholding tax on future income and gains on those assets.
Compliant taxpayers will need to fulfil complex compliance requirements if they are not to suffer these charges which may be applied to any assets held by a Swiss paying agent.
For UK-resident non-domiciliaries the Agreement does provide a possible route to being subject to neither the levy nor the withholding taxes while still preserving secrecy if a complex series of steps is taken.