2 Feb 2012

Is the UK serious about tackling tax evasion?

Taxing civil servants is one thing, but experts tell Channel 4 News that, if it is serious about tackling tax evasion, the UK should look to the US, which is waging “economic war” against Switzerland.

Today’s move by Danny Alexander to end civil servants avoiding thousands of pounds of tax is just the latest in the coalition’s crackdown on tax avoidance. Or so the Treasury would have us believe.

It is also in the process of sealing an agreement with Switzerland which will, in the words of the exchequer secretary to the Treasury, “enable us to collect billions of pounds from those who have for too long evaded their responsibility to pay UK tax by abusing Swiss banking secrecy”.

Under the deal, UK funds in Swiss banks will face a one off charge on their entire balance and a new tax will be placed on UK accounts. The Treasury said the deal would repatriate between £4 and £7 bn.

However, since the agreement was announced last year, tax avoidance campaigners have pointed out numerous loopholes and a morally dubious information amnesty. The Tax Justice Network also said it will raise no more than £1bn.

Not only would the deal still allow tax evaders to avoid paying full UK tax rates, leading tax expert Richard Murphy from Tax Research UK told Channel 4 News, but these tax avoiders would still retain anonymity from the UK government.

“The deal is exceptionally generous,” he said. “The tax rates that will be taken off people is high, but not as high as if someone paid it in the UK. And Swiss bankers don’t have to tell the UK who it’s coming from.”

US vs Switzerland

The UK’s arrangements with Switzerland look even more flimsy in comparison to action being taken across the pond.

Only last week, the US effectively forced Wegelin, one of Switzerland’s oldest banks, to shut down by forcibly reclaiming the money it has lost from its citizens’ hoarding money in Swiss banks.

The tax rates that will be taken off people is high, but not as high as in the UK if someone paid it in the UK. And Swiss bankers don’t have to tell the UK who it’s coming from. Richard Murphy, Tax Research UK

The 270-year-old Wegelin bank is just the latest victim of America’s aggressive attack on the Swiss banks that are hoarding tax. Despite the fact that they are not subject to US law, the US government has succeeded in recouping hundreds of thousands of pounds by threatening lawsuits, penalties and criminal charges if Swiss banks do not cooperate.

Key to the America’s attack is gaining information about its tax evaders: authorities started with UBS – putting people in jail to force them to hand over data about former colleagues and clients, and this was then used to widen the probe to other banks.

While it is too early to talk cash as the operation is still ongoing, the US government has extracted over 4,000 names so far.

Read more from Economics Editor Faisal Islam: How many billions will Britain get from the great Swiss tax amnesty?

‘Economic Warfare’

America has essentially launched “economic warfare” against Switzerland, Nicholas Shaxson, author of Treasure Islands: Tax Havens and the Men who Stole the World and researcher for the Tax Justice Network, told Channel 4 News.

Switzerland started these “acts of aggression” in the first place, he adds, “and America is now in the process of defending itself against this”.

“The US has decided that Switzerland has been attacking its own tax system,” he said. “The UK’s position is different – it’s signing this incredibly cosy deal, which it never needed to do.”

Read more: Closer to home, the HMRC has come under criticism for having a ‘cosy relationship’ with big business.

European action

The reason the UK didn’t need to create its own deal, is because of the EU Savings Tax Directive. It was created in 2005, but is in the process of being toughened up so that tax havens like Switzerland can no longer hoard tax-free funds from EU citizens.

The UK may not have the might of America, “but we can gang up on Switzerland by being part of 27 countries,” Mr Murphy told Channel 4 News.

Deciding to go it alone and forge an Anglo-Swiss deal hit the headlines, but it is spin with no substance, says Mr Murphy: “They are creating a smokescreen. This deal protects people – it doesn’t change anything.”

In fact the deal is unlikely to actually go ahead – the EU Commission has indicated that the Anglo-Swiss deal, and a similar proposal between Germany and Switzerland, is illegal in EU law.

At a time when we all have to pull in the same direction to tackle the country’s financial problems, it is essential that we all pay our full and fair share. Chief Secretary to the Treasury, Danny Alexander.

Back on UK shores, Danny Alexander on Thursday repeated the government’s pledge to crack down on tax avoidance: “At a time when we all have to pull in the same direction to tackle the country’s financial problems, it is essential that we all pay our full and fair share,” he said.

David Gauke, Exchequer Secretary to the Treasury, also told Channel 4 News that the Anglo-Swiss deal is “the most effective way of recovering the tax owed to the UK and will enable us to collect billions of pounds”. He added: “Tax that we would never have received without this agreement, from those who have for too long evaded their responsibility to pay UK tax by abusing Swiss banking secrecy.”

But tax campaigners will be asking the government to follow America’s lead – if it is as serious as it says it is.

“I think the UK’s tax authorities have a responsibility to defend ordinary taxpayers,” adds Mr Shaxson, “and not create deals that allow the wealthiest tax payers to escape.”

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