UK v Swiss: time to consolidate?

Hindsight has transformed the way in which Rubik is seen among clients and advisers and it is benefitting from being compared with the UK's mini-FATCA, says Matthew Shayle

The Swiss/UK tax and information exchange agreement of 2012, known as Rubik, brought significant consequences for many UK residents with Swiss interests. It was separated into three parts:

• Regularising the past for UK-resident, UK-domiciled individuals: those with historical Swiss bank accounts (or other "bankable assets") had to decide whether to permit their Swiss banks to deduct a part of those assets and to pay them to HMRC anonymously, or to permit the banks to disclose account information to HMRC.
• Regularising the past for UK-resident, foreign-domiciled individuals: those known as "res/non-doms" were given the additional choices of making disclosures to the bank of all remittances made from the account and authorising a tax deduction from remittances matched to income and gains in the account, and of opting out of the 'historic' element of the Rubik agreement altogether. Simply by providing professional confirmation as to res/non-dom status for the relevant tax years, they had the ability to ignore the historical part of Rubik and to provide no further information to Swiss/UK authorities.
  In the alternative, res/non-doms had the ability either to authorise disclosure of account information, to self-assess and settle historical liabilities or to permit their banks to pay a portion of the account to HMRC.

• Regularising the future: with regard to the ongoing application of Rubik, res/non-doms and UK-resident, UK-domiciled individuals alike are given two options: authorise the bank to disclose account information to HMRC or allow the bank to impose withholdings of UK taxes. For res/non-doms, the imposition of withholding taxes is limited to income and gains with a UK source or otherwise remitted to the UK from the account.

The withholding is made by the Swiss banks and is transferred to the UK authorities as an aggregate payment across all relevant account holders' accounts. It has therefore been characterised as anonymous.

However, HMRC's statement in its 2012-13 foreign notes - "You should also include in details of ['special withholding tax'] any tax deducted from foreign income or gains under the UK/Swiss tax cooperation agreement which came into force on 1 January 2013" - may call this advertised anonymity into question.

Mini-FATCA

Rubik's most notable comparator is now the UK's 'mini-FATCA' arrangement with its Crown Dependencies and British Overseas Territories, which requires "financial institutions" in the relevant jurisdictions to report information to the UK about accounts held by UK residents.

The full extent of the reported information under mini-FATCA will include (by 2016) the account holder's name, address and date of birth, their National Insurance number and the account balance, gross annual income and proceeds of disposals and redemptions.

For res/non-doms, the information reported to HMRC may be restricted to transfers in or out of the relevant accounts, so as to reflect the remittance basis available to such account holders. This means that all cash payments and transfers to/from a UK- or indeterminable- destination/source will trigger a report that should include the account holder's details, the account number and the name of the bank.

This is a significant amount of information that a res/non-dom individual may feel exceeds HMRC's remit; in particular, where transfers are made of foreign income and not as a remittance, HMRC may be receiving information that does not relate to the individual's UK tax position at all.

It is clear that the following information relating res/non-doms' Crown Dependency accounts will be reported under mini-FATCA but may not be similarly reported under Rubik in relation to the same individual's Swiss accounts:

• receipts from a UK source that are not income or gains
• receipts from other indeterminable territories
• transfers to indeterminable territories; and
• transfers to a UK recipient that the account holder self-certifies not to be taxable remittances.

And, unlike under Rubik, there is no withholding alternative to disclosure under the mini-FATCA arrangements, thereby not giving account holders the option to retain anonymity while making the proper payments of tax.

A further concern under Rubik is that the Swiss banks do not have reporting obligations where genuinely discretionary structures are in place, as ownership cannot be inferred on genuinely discretionary beneficiaries. However, the mini-FATCA arrangements broadly require reports relating to any equity interests in discretionary trusts.

It appears that the Swiss model benefits from comparison with mini-FATCA. Clients with a foothold in each of Switzerland and the UK's related territories may note the different treatments expected and consider consolidating their holdings in a single jurisdiction to benefit from the agreement terms that best suit their situation.

Matthew Shayle is an associate in the private client group of Lenz & Staehelin's Geneva office

He writes a regular blog on Switzerland for Private Client Adviser