ZURICH/LONDON (Reuters) - Swiss banks could end up as much as 500 million francs ($520 million) out of pocket as British clients who have dodged tax spurn a deal aimed at preserving their anonymity and instead reach individual settlements with UK tax authorities.
The Swiss Bankers Association (SBA) said on Friday many UK clients had chosen to come clean to the tax authorities and pay the taxes due on their accounts, rather than making a one-off punitive tax payment that allows them to stay anonymous.
Under a deal signed on January 1, Swiss banks paid 500 million francs to Britain, which they will only receive back in full if their UK-resident clients pay at least 1.3 billion francs through the anonymity scheme, rather than direct to Britain.
Credit Suisse CSGN.VX said it on Friday would book a maximum charge of 90 million francs in the second quarter due to the level of client payments, while larger rival UBS UBSN.VX said it would report the impact in its second-quarter results.
The SBA said it was possible “either none or only a small part” of banks’ 500 million franc guarantee would be recovered.
With Swiss bank secrecy under fire for shielding tax cheats, the country’s banks had originally supported tax deals as way of allowing clients to regularize their affairs without revealing their identities.
But since Germany rejected such an agreement with the Swiss in December, banks have become less enthusiastic about the model they see as cumbersome as it puts the onus of tax collection onto them.
The figures also raise doubts about Britain’s expectation that it will rake in 3.2 billion pounds ($4.8 billion) this year from a combination of individual payments and the anonymity scheme, which now only looks set to bring in around 900 million.
This could be an embarrassment to finance minister George Osborne, whose government has made both deficit reduction and tackling tax avoidance a key theme for its chairmanship of the G7 group of industrial nations.
A Swiss banking source and a Swiss tax advisor with UK clients both said the estimate penciled in by Britain’s finance ministry last December - and confirmed but its independent budget watchdog in March - looked “highly ambitious”.
SBA spokesman Thomas Sutter there were no longer any untaxed UK assets in Switzerland and that fewer had come to light than expected, because many British residents had ‘non-domiciled’ status, meaning their Swiss assets were not liable for tax.
However, Britain’s tax authorities said there was no reason as yet to doubt the accuracy of the 3.2 billion pound estimate, despite the fact that the only cash actually booked so far in Britain’s public accounts is the 500 million francs paid by Swiss banks in January.
“The estimate for yield from the Swiss agreement took into account the likely balance between tax withheld by the banks and tax collected by HMRC directly from individual taxpayers following disclosure, as well as the taxpayers’ tax status,” said a spokesman for Her Majesty’s Revenue and Customs.
“More people have chosen to disclose their tax affairs to HMRC than expected, so the yield from this route is likely to be higher than anticipated. There is no reason to revise the overall yield estimate at this point,” he added.
Britain’s budget watchdog, the Office for Budget Responsibility, included the 3.2 billion pounds of Swiss tax revenue in its March forecast for British public borrowing to fall to 120 billion pounds, or 7.5 percent of economic output, during the 2013/14 tax year.
But it also noted that “the estimated revenue raised by this measure is ... highly uncertain as there is little hard information about the value of UK individuals’ financial assets in Switzerland, and how these individuals will respond”.
($1 = 0.6719 British pounds)
($1 = 0.9616 Swiss francs)
Editing by Mark Potter and David Holmes