Global headlines have been caught by the release of data detailing the facilitation of tax dodging, likely evasion,[1] by the Swiss branch of HSBC. There is in reality nothing new about the revelations-the ‘Lagarde List’ has been blowing around the tax authorities’ desks for several years at this stage. Indeed, HMRC have been in the process of extracting tax from Swiss bank account holders for the last two years, by virtue of the Swiss/UK Tax Cooperation Agreement. The endeavour however has been quite unsuccessful.

This blogpost seeks to illuminate upon the substance of the Swiss/UK Tax Cooperation Agreement before detailing the inevitable pitfalls to which it has succumb.


The Swiss/UK Tax Cooperation Agreement[2], which “effectively decriminalizes tax evasion”[3], was signed on 6 October 2011 and came into force on 1 January 2013[4]. The agreement provides for UK resident taxpayers with bank accounts in Switzerland:

  • to be subject to a one-off payment on 31 May 2013 to clear past unpaid tax liabilities[5] and/or to be subject to a withholding tax on income and gains for the future from 1 January 2013 (between 27% and 48% annually); or
  • to authorise the Swiss bank or paying agent of the taxpayer to provide details of the Swiss assets to HMRC. This option does not provide relief from past or future tax liabilities.[6]

Whichever route is chosen by the taxpayer, there are two essential elements: the first being a cleansing of past liabilities and the second being future compliance. In addition to the fact that it was evasion that these UK resident Swiss Account Holders had historically been pursuing, the agreement bears more than a mere passing resemblance to the “amnesty” agreement in the Fleet Street Casuals case. For this reason, it is not clear there was a need for legislative force behind the agreement but the answer probably lies in the fact that the agreement was complicated by the cross-border element. Per Philip Baker, Section 218 of and Schedule 36 to FA 2012 are necessary because the usual provisions for giving effect to double taxation conventions[7] and tax co-operation arrangements[8] do not provide for giving effect to an agreement such as the Rubik Agreement.[9] Unlike the Fleet Street compromise, the Swiss Account holders could remain anonymous if the first of the above two routes was chosen. Effectively, this results in a subrogation of HMRC’s duty of collection to the Swiss Authorities, as it is in practice impossible for HMRC to collect tax from persons, the details of who are unknown. Moreover, it is not possible in the UK to make an anonymous tax return. Against the cross-border element, this anonymity more forcefully illustrates why legislative effect was required.

A further comment is required on the level of co-operation from the Swiss authorities required to effectuate the agreement. The first of the above routes is more favourable to the taxpayer who has been aggressively evading tax and whose true tax bill is much greater than the figure to be derived under the arrangement. Implicit is an acceptance that certain categories of people have been aggressively evading HMRC. Taking this background against the 18month run-up time to the implementation of the agreement, it is obvious what issue could potentially arise, namely, that the aggressive taxpayer will simply continue evading by shifting funds to another tax haven. As a safeguard, the Swiss authorities “pledged that they [would] not be complicit in helping people to take money out of the scope of this [agreement]”[10]. In addition to the collecting of the tax and the prevention of further evasion, support was required from the Swiss authorities in deciphering the beneficial owners of various structures. As noted by Dave Hartnett, then Permanent Secretary for Taxation, on 12 September 2011 before the Treasury sub-committee:

“Where we have gone with the structures and trusts is that Swiss banks will require disclosure to them of beneficial ownership, and if that shows a connection to the United Kingdom, there will be withholding against those investments, and the Swiss tax authority will audit this in relation to the Swiss banks. It has a pretty fearsome reputation for the way in which it audits Swiss banks.”[11]


The agreement has proved to be a press-disaster from the perspective of the HMRC, Treasury and Government. Much the same as the argument forwarded by the Small Businesses and Self-Employed in relation the Fleet Street Casuals agreement, there was a stark and palpable disconnect between the treatment of the ordinary taxpayer and the wealthy taxpayer. As surmised by Ian Swales[12]:

“I think what bothers members of the public is the vigour with which the authorities pursue people who defraud a few thousand in benefit compared with the vigour with which we pursue people who evade thousands and thousands in tax. That is what the public do not like. I think that they expect to see some equity, because we are talking about the public pound in both cases”

Secondly and relatedly, the agreement proved to yield substantially less for the exchequer than was initially forecasted. The Tax Justice Network outlined a number of “fundamental flaws” in the arrangement; whereby 10 inherent escape routes dilute the effect of the agreement for those looking to continue evading tax liabilities[13], most notably, through the carve-out for discretionary trusts[14]. Unfortunately, such limitations came to bear. HMRC forecasted that a total of £4.4 billion[15] would be received over the next three years in respect of past tax liabilities (2013, 2014, 2015)[16]. The initial headline grabbing £3.12bil collected in May 2013 turned out to be just that-headline grabbing. Such a sum was not collected in May 2013 and the misconception is derived from the rules for the budget. Estimated figures must be included in the budget as at May 2013 and as such, the figure is a mere estimation of the yield which the Revenue expected to get in that year. From January to October 2013, the Revenue had received £440mil, a far cry from the “Alice in Wonderland”[17] £3.12bil figure factored into the budget[18]. Going forward, for the year ended 2014, the revised figure from the OBR was £1.9bil[19] down from the previous estimate of £2.9bil[20]:

“The lower-than-expected yield is likely to reflect both a smaller initial tax base and a larger behavioural response than was estimated. The smaller tax base is likely to reflect some combination of: fewer assets held by UK individuals in Swiss banks; more of the assets belonging to non-domiciles or people who are already compliant; and the failure of Swiss banks to identify UK individuals holding assets; or circumvention of the deal. The SBA announcement suggested a high number of individuals with non-domicile status. The extent of capital flight to other offshore centres is likely to have been greater than expected…There are indications that a higher proportion of individuals have decided to disclose via [the LDF or to HMRC directly]. However, evidence from LDF and HMRC cases so far suggests that the average yield per case is lower than expected. As a result, the yield expected from these two routes has been reduced to less than half the original costing. The smaller-than-expected tax base means that the yield from the future withholding tax has also been revised down.”


Given the level of Swiss co-operation required, quite grave pitfalls, limited exchequer return and the surprising willingness to appease tax evaders, one is pressed for the logic behind the agreement. Philip Baker, in response, explains that the reasons for entering into the arrangement “are complex but a partial explanation may be that budgetary deficits can lead governments to do strange things.”[21]


[1] For instance, the ‘‘French authorities concluded in 2013 that 99.8% of their citizens on the list were probably evading tax.’’ See: http://www.bbc.co.uk/news/business-31248913

[2] For an interesting overview of the first tax treaty entered into between Switzerland and the UK, see: Sunita Jogarajan, “The conclusion and termination of the “first” double tax treaty” (2012) 3 BTR 283

[3] Richard Brooks, ‘The Great Tax Robbery’ () 203

[4] Finance Act 2012, Schedule 36 and s. 218

[5] It is difficult to state in general terms this figure as a precise numerical percentage of capital. Suffice it to say that it is “calculated in accordance with a mind-bogglingly complex formula” (Baker, 490)

[6] See generally, the HMRC webpage on the UK/Swiss agreement: <http://www.hmrc.gov.uk/taxtreaties/ukswiss.htm> accessed 1 April 2014

[7] Taxation (International and Other Provisions) Act 2010, s. 2

[8] Finance Act 2006, s. 173. These provisions give power to Parliament to enter into tax agreements. Of importance to the case at hand is FA 173(2) which specifies that International tax enforcement arrangements relate to “a) the exchange of information foreseeably relevant to the administration, enforcement or recovery of any UK tax or foreign tax; b) the recovery of debts relating to any UK tax or foreign tax…”

[9] Philip Baker, “Finance Act notes: section 218 and Schedule 36: The UK-Switzerland Rubik Agreement” (2012) 4 BTR 489, 489

[10] Dave Hartnett, http://www.publications.parliament.uk/pa/cm201012/cmselect/cmtreasy/uc1371-iii/uc137101.htm in response to Q669

[11] Administration and Effectiveness of HMRC: Closing the Tax Gap http://www.publications.parliament.uk/pa/cm201012/cmselect/cmtreasy/uc1371-iii/uc137101.htm

[12] Committee of Public Accounts, Report by the Comptroller and Auditor General (Monday 28 October 2013)

[13] http://www.taxjustice.net/cms/upload/pdf/TJN_1110_UK-Swiss_master.pdf

[14] The agreement only relates to bank accounts held in trust so far as the beneficiaries are fixed. In the case of discretionary trusts, the beneficiaries only have a right to the assets when the trustee has exercised their discretion so as to entitle the beneficiaries. Discretionary trust beneficiaries, in other words, are differentiated from fixed trust beneficiaries in that the latter has a right to the assets or income from the assets, whereas the former has a right merely to be considered.

[15] Previously, the estimate by the Exchequer Committee was between £4-7bil. See Hansard, Public Bill Committee, Finance (No.4) Bill, Eighteenth Sitting, col 638 (June 26, 2012).

[16] http://www.nao.org.uk/wp-content/uploads/2013/07/10174-001_HMRC_Standard-report.pdf

[17] Margaret Hodge p. 16 http://www.parliament.uk/documents/commons-committees/public-accounts/PAC%2028.10.13.pdf

[18] p. 13 http://www.parliament.uk/documents/commons-committees/public-accounts/PAC%2028.10.13.pdf

[19] p. 115 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/276529/8748.pdf

[20] p. 1 http://budgetresponsibility.independent.gov.uk/wordpress/docs/June-2013.pdf

[21] Philip Baker (n 9), 490


About taxatlincolnox

Tax law academic. With this blog, I seek merely to contribute to the debate. All thoughts are mine, of course.
This entry was posted in Tax Law. Bookmark the permalink.


  1. Pingback: Remember that Swiss/UK Tax Cooperation Agreement? Vrang v HMRC [2017] EWHC 1055 | taxatlincolnox

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s