Has Tackling Tax Evasion Reached a Turning Point?

08/15/2011 12:45 pm ET | Updated Oct 15, 2011

According to industry rumors, the historic tax agreement between Switzerland and the United Kingdom -- a deal which has been on the table for some time -- is due to be announced imminently, with some sources suggesting that we will see the final detail as early as mid-August. The deal marks an important point in the UK fight against offshore tax evasion and comes at a time when both the U.S. and Germany are also focusing heavily on the issue.

The UK-Swiss agreement, which is expected to tax undeclared assets hidden in Swiss bank accounts in return for account holders retaining their banking secrecy, coincides with a number of other notable developments with HM Revenue and Customs. This month HMRC sent out a further 60 letters to HSBC bank account holders (a number of these letters have already been sent previously) informing them of investigations relating to data stolen from the bank's Geneva office and subsequently passed onto HMRC in 2010. At the same time, having seen the initial success of its Liechtenstein Disclosure Facility (LDF) -- a partial amnesty negotiated by HMRC two years ago -- recent media reports suggest that HMRC has revised its predicted yield over the course of the disclosure, from £1bn to £3bn. This year HMRC has also introduced a raft of new legislation to make life difficult for those 'caught' with a tax problem, as opposed to those who come forward voluntarily. The new rules include publishing the names of tax defaulters and higher financial penalties if caught 'deliberately' evading taxes.

What's particularly interesting about the upcoming deal is that it indicates an increasingly pragmatic approach being taken by HMRC, in order to reach those investors who are more difficult to expose via methods such as the LDF, or the traditional investigatory route. Reports have suggested that Britons with funds hidden in Switzerland will pay tax at 50 per cent and the deal will legitimize their undeclared assets, on an anonymized basis.

There is still obviously a degree of uncertainty and the devil will be in the detail, however what we do know is that -- according to Dave Hartnett CB, Permanent Secretary for Tax at HMRC -- the deal will be different, but no more attractive, than the LDF. This is an important point to note, as there has been speculation that some offshore account holders are waiting to see if the terms of the Swiss deal will be more favorable. This is a risky approach, given the new legislation I refer to earlier. HMRC is likely to impose strict penalties for those 'caught' with a tax problem, as opposed to those who come forward voluntarily. The fact is that HMRC is now armed with many tools to gather information on tax evaders, ranging from stolen data to Tax Information Exchange Agreements (TIEAs) with countries across the globe -- of which there has been a huge proliferation in recent years.

Of course there have been the inevitable murmurings that those with undeclared accounts in Switzerland will merely move money to other jurisdictions such as Singapore, which has made a concerted effort to attract wealth by making regulatory and tax changes, but as the above evidence should suggest, you can run, but you can't hide.