UK's Agreement with Switzerland raises many questions

The Treasury's anouncement on 24th August confirmed that a deal has been reached with the Swiss Government after a long period of negotiation. It was always going to be difficult to work out a deal with the Swiss that could sit easily alongside the deal with Liechtenstein (the latter drives funds to Liechtenstein and could be said to encourage investment there as the price for co-operation). But it seems from the Treasury's website
( http://www.hm-treasury.gov.uk/press_98_11.htm ) that the solution is to be a penal rate of withholding tax on funds invested in Switzerland. This is to be a tax on capital that assumes the funds are illegitimate, but if the account has been disclosed to HMRC or the taxpayer is willing for that the Swiss to hand over details there will be an exemption.

The withholding tax might in most cases appear to be a lot cheaper than the tax interest and penalty that would be due if it was disclosed under the LDF - assuming the funds held represented undisclosed taxable income. However there is nothing to suggest that the withholding tax represents some sort of amnesty from the actual tax that is otherwise due. So this initiative looks as though it will be "all stick and no carrot". In all the circumstances that is probably fair enough. HMRC's problem was that the Swiss would not hand over details of their investors so this deal was probably the best that HMRC could have hoped for

 But there are many unanswered questions. We shall have to await the publication of the signed agreement, no doubt with some guidance notes, before we can usefully start to consider how this will work in practice. For example what will happen if funds are moved from Switzerland before 2013? How will this apply to non-doms wwhere there is no reason to have disclosed an account and no reason to suppose the funds held are legitimate? And how will the withholding tax be dealt with if the investor does come forward and make a voluntary disclosure later on?

 No doubt the guidance will cover some of the questions and we will be monitoring the situation with interest.