27.Paragraph 13 sets out the two UK taxes with which this Part of the Schedule is concerned. They are the same two taxes for which the liability for periods from 1 January 2013 on income and gains arising in Switzerland is extinguished by the payment of the withholding tax under Part 3 of the agreement or making the tax finality payment specified in the Joint Declaration.
28.Paragraph 14 explains that this Part of the Schedule sets out the effect on the liability of a person to whom a certificate is given by a Swiss paying agent evidencing that withholding tax or a tax finality payment has been applied. The certificate is used as the basis for demonstrating that UK tax liability on income and gains arising in Switzerland is extinguished by the withholding tax or the tax finality payment. If withholding tax is applied or the tax finality payment is made, the amount of income or gains concerned is called ‘the cleared amount’. ‘The underlying account’ (comprising the portfolio of assets in respect of which the certificate is issued) is not itself cleared as it may include items on which tax has not been paid. The amount of withholding tax or tax finality payment is called ‘the transferred sum’.
29.Paragraph 15 provides that, unless an election under paragraph 16 is made, a person to whom a relevant certificate is issued ceases to be liable to tax on the income and gains to which withholding is applied together with any associated interest and penalties. The withholding tax or tax finality payment (coupled with the retention under the EUSA) satisfies the UK liability on the cleared amount.
30.Paragraph 15(5) attracts the rules in paragraph 7 to the extent that they relate to income tax and capital gains tax. A failure to include items taxed under Part 3 of the agreement or the Joint Declaration in a return may result in too little tax being paid on items that are returned. Attracting those rules ensures that the liability on other items is what it would have been had the cleared income and gains been properly taken into account. To avoid having to recalculate settled liabilities as far as possible, the cleared amount is treated as the top slice of income and gains of the relevant period.
31.Paragraph 16 gives effect to Article 23 of the agreement (and contains corresponding provision for a tax finality payment under the Joint Declaration). It provides that P may elect that the withholding tax or tax finality payment that has been applied is not treated as settling liability if all affected amounts relating to the underlying account are included in a return or amended return. This allows P the option to calculate tax liability on the normal basis with the withholding tax or tax finality payment allowed as a credit against that liability. An election must be made in the return or amended return and accompanied by the certificates issued under Article 30(1) and the Joint Declaration relating to the underlying account. If a claim is made under Part 3 of TIOPA 2010 for the retention under the EUSA to be credited as a ‘special withholding tax’ then P is treated as making an election under this paragraph. So in a EUSA case the choice is to claim (with both the EUSA retention and the tax finality payment credited) or not to claim (with neither credited).
32.Paragraph 16(6) allows for the net amount received to be grossed up. So that, for example, if the EUSA retention is made at 35 per cent and the tax finality payment at 13 per cent resulting in P receiving £52 out of an initial income of £100, then section 143 TIOPA 2010 provides that the measure of income for UK tax purposes is £100.
33.Paragraph 17 provides that, except for special withholding tax under Part 3 of TIOPA 2010 any credit for foreign tax that is allowed against liability to income tax or capital gains tax is allowed in priority to any credit under paragraph 15. The special withholding tax is allowed last in accordance with the rule in the EUSA.
34.Paragraph 18 makes it explicit that the only circumstance in which the provision of a relevant certificate to HMRC entitles P to a repayment of any tax paid is as a result of an election under paragraph 16. The tax finality payment and special withholding tax are set against income tax or capital gains tax as appropriate and then against any liability to the other tax, with only the excess eligible for repayment.
35.Paragraph 19 ensures that the tax finality payment under the Joint Declaration is not itself a special withholding tax within Part 3 of TIOPA 2010.