I have written previously about the 2011 Swiss/UK Tax Cooperation Agreement (‘the Agreement’), which provided 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 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.
The Swiss Account holders could remain anonymous if the first of the above two routes was chosen.
The claimant in a recent case before the Ouseley J in the Administrative Court (Vrang v HMRC  EWHC 1055 (Admin)) was subjected to the full force of this Agreement. The Swedish claimant worked for Credit Suisse in Switzerland between 1988 and 2005, before moving to London. She amassed an amount of money in several bank accounts in Switzerland during that period which she intended for use when she would return to Sweden. In 2012, the bank warned her about the need to make a voluntary disclosure to HMRC pursuant to the Agreement and the possibility of a one-off lump sum being extracted. True to their word, a lump sum of £58,000 (ca.) was extracted in 2013.
The claimant sought the return of the bulk of the money from HMRC, claiming that something between £1,000 and £7,000 was in fact owed. HMRC refused the request on the basis that she did not qualify for a refund under the express terms of the Agreement (which provides for repayment where the amount was ‘wrongly levied’, Article 15(3) of the Agreement) or under HMRC’s managerial discretion which according to HMRC:
afforded to the Commissioners for HMRC enabled them, in exceptional cases, to offer repayment in cases of “hardship at the margins”, that is in “circumstances where keeping the charge in place would cause significant hardship and result in a situation which a court would view as grossly unfair to the individual paying the charge, as a result of actions entirely beyond that person’s control.
The sum, it was said by HMRC, was not wrongly levied as the extraction from the claimant’s accounts followed the letter of the Agreement, and hardship was not established (the personal hardship that the claimant had suffered at the time was insufficient to reach the threshold).
The judicial review sought to challenge HMRC’s refusal on the following grounds primarily (although other arguments relating to EU law and human rights were raised):
- that there is no Parliamentary authority for the levying of the sum, and so it cannot be levied, where there is no tax due in that amount;
- if there is legislative authority to that effect, it has been misconstrued in a number of respects by HMRC and
- that HMRC has not exercised its powers, notably its discretionary powers, lawfully.
Dealing with the first ground, it is a well-known aphorism that there must be Parliamentary authority for the levying of tax. However, the court held that it the payment was not a tax levied by HMRC, but rather a payment from a cooperating authority under an international agreement.
Dealing with the second ground, the judge noted that the phrase ‘wrongly levied’ in s. 15(3) of the Agreement was ‘clearly confined to an error in the interpretation or application of the Agreement by the paying agent or the Swiss Tax Authority’ and no such error arose in the case.
In relation to the final ground, the judge expressed ‘considerable sympathy’ for the claimant, but that aside, HMRC had formulated lawfully and rationally a policy on refunds whereby it would exercise its discretion in certain, limited circumstances. The claimant simply did not fall within a class of persons in favour of whom HMRC would exercise its discretion.
When previously writing about the Agreement, I had been sceptical about its merits. Here however is a cautionary tale about a person who negligently fell on the wrong side of the Agreement, failing to follow the steps that would have meant she had little tax to pay and in the end being subjected to a considerable extraction from her savings. It was a case of mala prohibita not mala in se. People researching, writing and working in the tax sphere understand only too well the sharp edges of taxing provisions and agreements. Ordinary citizens will not be so well informed and this is a case showing the severe consequences.