Tax Compliance Management and Reporting System Agreement on Bilateral Tax Matters Between Switzerland and the UK

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1 Tax Compliance Management and Reporting System Agreement on Bilateral Tax Matters Between Switzerland and the UK Source: UBS, Grant Thornton, Crow Clarke Whitehill

2 INTRODUCTION Agreement on Bilateral Tax Matters Between Switzerland and the UK In the new agreement on cooperation in the area of taxation Switzerland and the UK reached a permanent solution regarding taxation questions for individuals resident in the UK who are the account holders or beneficial owners of assets held with a Swiss paying agent (usually a bank). The solution respects the protection of bank client privacy. Consequently, the automatic exchange of information will no longer be an issue between Switzerland and the UK. United Kingdom Resident and Non Domiciled (UK RND) A Swiss paying agent may only accept a relevant person as United Kingdom Resident and Non Domiciled (UK RND) individual when provided with a certificate produced by a lawyer, accountant or tax advisor who needs to be a member of a relevant professional body which has responsibility for the regulation of these professions in the UK. The following should be confirmed by the advisors in the certificate: the UK tax return for the relevant UK tax year (either 2010 / 2011 or 2011 / 2012) has been submitted with a claim to being non- UK domiciled that tax return also demonstrates the remittance basis has been claimed and the remittance basis charge paid, if appropriate and to the best of their knowledge, the domicile status of the individual is not being challenged by HMRC. The certificate must to be provided to the Swiss paying agent at latest by 31 May If the relevant person fails to provide the respective certificate, the Swiss paying agent will deduct the one-off tax payment on all relevant assets.

3 CLIENTS THAT ARE IN SCOPE UK RNDs who: were not domiciled within the UK on 31 December 2010 and have an account with a Swiss paying agent as of 31 December 2010 and as of 31 May 2013 DATES RELEVANT FOR ONE OFF TAX PAYMENT Relevant date for residency test (for being in scope of Agreement): 31 December 2010 Relationship with Swiss paying agent: 31 December 2010 and 31 May 2013 Client decision required latest by 31 May 2013 Date of one-off tax payment: In general 31 May 2013 Assets Under Scope assets booked in accounts or custody accounts with a Swiss paying agent, including, but not limited to, the following: Transaction accounts (Cash accounts, savings accounts) Fiduciary deposits All forms of stocks, shares and securities Options, debts and forward contracts Structured products traded by the banks such as certificates and convertibles Precious metal accounts or precious metals booked into a custody account Assets Not in Scope Contents of safe deposit boxes Real estate

4 FINAL WITHHOLDING TAX ASSESSMENT A one-off withholding tax payment levied on an anonymous basis on assets booked with a Swiss paying agent for those individuals who have not been tax compliant in the past. A tax charge of between 21% and 41% on assets depending on the length of the bank relationship and level of change of the assets will result from the calculation of this one-off tax payment. Virtually all forms of past tax liabilities are regularised by means of the one-off tax payment. Individuals may also continue to opt for the Liechtenstein Disclosure Facility (LDF) and would then select the voluntary disclosure option in order to avoid the one-off tax payment. How does final withholding tax work? The final withholding tax is levied by a Swiss paying agent (usually a bank) on interest, dividends, capital gains, and other investment income and is paid anonymously by the SFTA to HMRC. The withholding tax will be charged at the time the investment income and capital gains arise using the following rates: o 27% for capital gains o 40% for dividend income o 48% for interest and other investment income For interest income that is subject to EU Savings Tax, the following will apply: o the EU Savings Tax retention will continue to be charged at the current rate of 35% o to arrive at the full charge of 48% according to the Agreement, o an additional 13% will be charged separately. A standardized formula will be applied to calculate the amount of the one-off tax payment: It considers the value of the assets held by a relevant person and the length of the relationship The type of asset and investment return are not relevant The formula will result in a minimum charge of 21% of assets. Where based on the formula, the tax charge amounts to 34% and the relevant capital is GPB 1 Million or higher then the tax burden will increase in steps of one percentage point for each additional 1 million. In these cases, the maximum tax charge amounts to 41%. In general: the longer the relationship between 2003 and 2010 (number of years) and the higher the start capital is in proportion to the relevant capital, the lower the tax charge will result for the relevant person (minimum 21%).

5 Currency of Reporting For relevant assets held in currencies other than GBP, the Swiss paying agent shall convert the amount into GBP by using the relevant fixed exchange rate published by SIX Telekurs at the corresponding date (e.g. 31 December 2002 and 31 December 2010). Further details will be published once available. By what date do Clients have to decide if they wish to choose the voluntary disclosure or the final withholding tax? It is expected that relevant persons will have to decide no later than the end of December 2012 whether they want to choose voluntary disclosure for the future. Relevant persons who do not communicate their decision by the required date will automatically be subject to the final withholding tax deduction starting 1 January Will relevant persons receive confirmation of their one-off tax payment? At the time the one-off payment is levied, the Swiss paying agents will issue a certificate for the relevant persons who paid the one-off tax. The certificate shall be considered approved by the relevant person, if he / she does not object within 30 days of issue. Date when the final withholding tax will be charged As of 1 January 2013, the final withholding tax will be charged whenever relevant income or capital gains are realised (or on taxable remittances in the case of certain resident non-domiciled individuals).

6 FUTURE TAX ASSESSMENT Future investment income and gains (interest, dividends, other investment income and capital gains) will be subject to a final withholding tax that is levied on an anonymous basis and discharges the individual s tax obligations in the UK. The withholding tax will be charged at the time the investment income and capital gains arise using the following rates: 27% for capital gains, 40% for dividend income and 48% for interest income and other investment income. 35% EU savings tax will continue to be levied on interest income that is subject to EU savings tax. o The final withholding tax will be payable on interest income that is not subject to EU savings tax (at 48%). o For interest income subject to the EU savings tax deduction, the difference between the EU savings tax and the final withholding tax (13%) will be charged separately. Individuals can choose between the final withholding tax and voluntary disclosure. By 31 March, individuals need to provide Swiss paying agents with a declaration of intent to claim the remittance basis of taxation for the following UK tax year (e.g. by 31 March 2013 for the tax year 2013 / 2014). This declaration then needs to be confirmed by a certificate to be provided to the Swiss paying agent at the latest by 31 March following the end of relevant UK tax year (e.g. by 31 March 2015 for the tax year 2013 / 2014). The certificate needs to be produced by a lawyer, accountant or tax advisor who needs to be a member of a relevant professional body which has responsibility for the regulation of these professions in the UK. The content of the certificate is the same as described in question 5.

7 TAX ON INHERITANCES Where a relevant person dies, the personal representatives or the beneficiaries, as appropriate, must consent to either collection of tax at the inheritance tax rate of 40% The final withholding tax does not cover inheritance tax. Where a Swiss paying agent becomes aware of the death of a relevant person, it will freeze the assets of which the relevant person was the beneficial owner. Within a year from the date of the relevant person s death, the personal representatives or the beneficiaries, as appropriate, can authorise the Swiss paying agent to disclose the following information to HMRC: the identity (name, first name, date of birth and, if known, the date of death) and address of the deceased person the client number of the deceased person the name and address of the personal representatives or the beneficiaries to whom the assets will pass as a result of the death. the account balance and statement of assets as at the date of death. If no such authorisation is given within a year from the date of the relevant person s death, the Swiss paying agent will withhold 40% of the relevant assets booked at the date of the death and transfer the tax withheld to the SFTA on a fully anonymous basis.

8 Information provided if a client opts for voluntary disclosure rather than the one-off tax payment If a relevant person opts for voluntary disclosure, the Swiss paying agent will provide the following information to the Swiss Federal Tax Administration (SFTA): Identity (name and date of birth) and residential address UK tax reference number (if known) Name and address of Swiss paying agent Client number of the relevant account (client account, or custody account number, IBAN code) Annual account balance and statement of assets as of 31 December for the years 2002 to 2012 Information provided to the relevant person opting for voluntary disclosure If a relevant person opts for the voluntary disclosure, the Swiss paying agent will provide the following information to the SFTA on an annual basis: Identity (name and date of birth) and residential address UK tax reference number (if known) Name and address of Swiss paying agent Client number of the relevant account (client account, or custody account number, IBAN code) the tax year concerned In addition, the following information will be provided: For UK resident domiciled relevant persons: The total amount of income received The total amount of capital gains and losses realized

9 IMPACT ON JOINT / COLLECTIVE ACCOUNT HOLDERS If one or more joint account holders are relevant persons, the account is in scope of the Agreement. In cases where not all joint account holders are relevant persons, the tax (one-off payment or final withholding tax) owed is calculated based on the number of relevant account holders (prorata), unless the Swiss paying agent has been informed of, and appropriately documented with, a different proportion quota. The same applies to collective accounts. Example: Joint account with three account holders of whom one is resident in France, the two others in the UK. The tax payment will be 2 / 3 of the total amount calculated. The rules are thus identical to the ones for the European Savings Tax Directive (herein after referred to as ESD ).

10 WHAT DOES THE OPT-OUT METHOD MEAN FOR RND RELEVANT CLIENTS Under the opt-out method, a relevant person will confirm to the Swiss paying agent that none of the other options are being chosen. In doing so, he / she can avoid both the oneoff payment for regularisation of the past and the need for disclosure of client and asset information. The Swiss paying agent will issue a certificate to this effect. Information provided to the Swiss Paying Agent by self-assessment opted UK RND relevant persons Under the self-assessment method, the relevant person needs to disclose to the Swiss paying agent the following amounts on which UK tax has not been paid for the period of 31 December 2002 up until the date of initialling of the Agreement (24 August 2011) in a prescribed form: all UK source income and UK situs gains relating to assets in Switzerland and all non-uk income and gains which were remitted to the UK from accounts in Switzerland Based on the information provided, the Swiss paying agent will calculate the one-off tax due by applying a tax rate of 34%. The one-off tax payment, which will be made in GBP, will be charged on 31 May 2013 and the amount will be passed on to the SFTA on an anonymous basis. The one-off payment based on the self-assessment has the effect of discharging an individual s past tax liabilities for the amounts declared in the self-assessment. It is not yet clear whether any potential inheritance tax can be discharged by this payment. The Swiss paying agent has no obligation to validate the information provided in the self-assessment. What is limited voluntary disclosure UK RND persons? If a UK RND person (claiming the remittance basis) opts for limited voluntary disclosure, he / she will not be subject to the final withholding tax, but the following information will be provided on a yearly basis to the SFTA, who will pass it on to HMRC: Identity (name and date of birth) and residential address UK tax reference number (if known) Name and address of Swiss paying agent Client number of the relevant individual (client, account, or custody account number, IBAN code) The tax year concerned The total amount of UK source income and UK situs capital gains The total amount of non-uk source income and gains remitted to the UK

11 WHAT HAPPENS IF A DECLARATION OF INTENT REGARDING THE REMITTANCE BASIS OF TAXATION IS NOT CONFIRMED BY A CERTIFICATE WITHIN THE REQUIRED TIMEFRAME? Where a relevant person has made a declaration of intent to claim the remittance basis of taxation as described in question 5.15, but the certificate has not been provided on time, the Swiss paying agent can not accept this person as a UK RND person for the purposes of the final withholding tax. As a result, the Swiss paying agent shall levy the final withholding tax from the beginning of the relevant tax year on all investment income and capital gains. The following tax rates apply in this case: 28% for capital gains 42.5% for dividend income 50% for interest and other investment income Any previously levied final withholding tax shall be offset. HOW ARE DOMICILIARY COMPANIES, I.E., NON-OPERATING COMPANIES, FOUNDATIONS, AND TRUSTS IMPACTED? here the current Swiss due diligence obligations (CDB, Form A) treat a relevant person as the beneficial owner of a domiciliary company, for the purpose of this agreement, he / she will be deemed to be the owner of the relevant assets of the domiciliary company, and the Agreement will take effect accordingly. WHAT DECISIONS MUST BE TAKEN AND BY WHEN? Swiss paying agents will formally notify their clients within two months of the Agreement entering into force, i.e., no later than 28 February These relevant persons must then, and at the latest by 31 May 2013, decide whether to opt for the one-off tax payment or the voluntary disclosure.