Peter Macfarlane talks about the new tax treaties signed between the UK and Switzerland and Germany and Switzerland, and about how this model is likely to be expanded to other countries. If you hold assets in a Swiss bank account you should be making preparations now.
Following the agreements made by the Swiss banks with the IRS, that effectively end Swiss bank accounts for Americans, a Swiss bankers plan called the “Rubik Project” is about to impact British and German residents who hold accounts at Swiss banks. However, we expect this eventually to be expanded to other countries, especially those within the European Union and likely also Australia, India and a few other jurisdictions that have been particularly vociferous about Swiss banking secrecy recently.
If you are resident in one of these countries, you might need to take action now to avoid a huge tax haircut on your Swiss account next year. This article tells you about steps you can take now to secure and safeguard your assets.
The Rubik Project is little known and understood. Even Swiss bankers I talked to told us they had not as yet received any guidance on the subject. Here are some of the highlights:
- The Rubik Project is originally a Swiss initiative. The Swiss have designed it as a way of appeasing other governments while (a) keeping full bank secrecy in place and (b) keeping their own access to important financial markets like London and Frankfurt unhindered.
- The Swiss banks offer to create and administer a flat rate tax on behalf of foreign governments, starting with the British and German governments, though this project is designed to be expanded to other countries. A retroactive tax is explicitly permitted, so that is a particular point to watch out for.
- The Swiss bank will automatically collect tax by deducting from the client’s account. Initially in the case of the UK the amount will be up to 50%, depending how long the account has been opened. In other words, up to half the account balance will be transferred to the foreign tax authority in one fell swoop! The payment will be transferred first to the Swiss federal tax administration, then to the respective foreign government.
- In return for this, the account remains completely anonymous, full bank secrecy is preserved, and the account holder is no longer obliged to declare the account on his or her tax return. In other words, the tax payments are calculated by the banks but the payment is completely anonymous.
- Importantly, this applies not just to natural persons resident in a treaty state, but also to legal entities of the personal/offshore holding company type, where the beneficial owner is a natural person resident in a treaty state. This includes offshore companies, trusts, foundations and the like that do not engage in any commercial or manufacturing business.
- Account holders do have the option to opt out of the anonymous tax collection, by proving that they have fully declared the funds to their home tax authority.
If you are netted by this tax, you are of course free to withdraw your funds before the date your account become liable to the Rubik tax. But the question is where to put them? Here are a few pointers:
- Since only the USA taxes its citizens, this project only applies to residents of the treaty countries. If for example you are a British citizen resident in Spain, or a German citizen resident in Paraguay, this tax is irrelevant to you. Changing your residency might be easier than you think! The only thing you need to do is make sure your Swiss bank has up to date details on your residency status, and copies of documents to back it up.
- Setting up a simple company to hold the account, that was always a legal way around the EU Savings Tax Directive, is not going to work any more. There are however two ways to keep companies out of the net:
– It appears that as long as your company engages in commercial transactions then it is exempt. There is no stated minimum, so this may be just one or two commercial transactions per year, that should be unrelated to the investment activity. However we would recommend if you choose this route you get your bank to agree in writing that the company will be exempt from the haircut. It seems to me that most banks will be keen to do this in order to retain the business.
– You can also change the beneficial ownership of the company, while keeping signatory control. There are a few ways to do this, that we will cover in future. One is by using an insurance company, and another is by using trusts.
Of course, what many British and German clients are doing right now is moving their assets out of Switzerland, often even within the same bank (eg Swiss-owned banks in Singapore)
This project is a uniquely Swiss initiative and we do not see it being widely adopted outside Switzerland.
The tax justice crowd are already claiming that the treaties signed by the UK and Germany are a sell out. It seems to me, however, a very pragmatic and ultimately sensible decision on both parts. The Swiss get to keep their secrecy, including a new treaty provision that limits requests for information to a maximum of 500 individuals per year – a clause specifically inserted to avoid fishing trips. The UK gets good publicity about cracking down on tax cheats, and some people will likely be scared enough to pay the tax. On the other hand, it’s quite an easy tax to legally avoid.
Bottom line? You should be especially aware of the retroactive nature of this treaty model, and the likelihood that it will be expanded to cover other countries. You should be making plans to avoid this, right now. If in doubt, talk to a professional adviser. Paid up Q Wealth members are entitled to free referrals to banks and advisers, including a free initial consultation.