Details of the Schedule
Part 1: Introduction
7.Paragraph 1 contains introductory material.
Part 2: The Past
8.Paragraph 2 sets out the four UK taxes with which this Part of the Schedule is concerned. They are the same four taxes for which the liability for periods up to 31 December 2012 on funds in Switzerland is affected (and may be extinguished) by the payment of the one-off levy under Part 2 of the agreement.
9.The paragraph explains what is meant in the Schedule by the term ‘taxable amount’ in relation to each of the four taxes.
10.Paragraph 3 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 the one-off levy has been applied to the funds in that person’s account. That person, who under the agreement must be the beneficial owner of the funds, is called ‘P’ and the certificate is called a ‘Part 2 certificate’. The certificate is used as the basis for determining whether and to what extent UK tax liability on untaxed monies in Switzerland is affected by the payment of the levy.
11.Paragraph 4 sets out whether a taxable amount is a ‘qualifying amount’ the tax liability on which may be affected by the production of a Part 2 certificate. A qualifying amount is a taxable amount on which P has not paid tax and for which a necessary link with the certificate can be demonstrated.
12.In a case where P is domiciled in the UK or is non-domiciled but has opted for the levy to be calculated using the capital method set out in the agreement, the necessary link is that the taxable amount – for example the amount of income or gain – can be regarded as forming part of the capital by reference to which the levy was applied. This is the amount of cleared capital calculated under Article 9(12) of the agreement and depends on the balance or value of the account at 31 December 2010 and 31 December 2012. It is given the label Cr.
13.To be a qualifying amount it is important that the taxable amount can properly be regarded as being part of Cr. In practice, with movements on accounts, this may not be clear. So paragraph 4 contains a rule that taxable amounts are attributed to assets in the way that produces the most beneficial outcome for P.
14.In a case where P is not domiciled in the UK and has opted for the levy to be calculated using the self-assessment method set out in the agreement, the necessary link is that the taxable amount is included in the omitted taxable base by reference to which the levy was calculated.
15.Further provisions about the interpretation of the conditions for a taxable amount to be a qualifying amount are in paragraph 11.
16.Paragraph 5 explains that a Part 2 certificate is only eligible to give tax clearance to P in a case where none of the exclusions set out in Article 9(13) and Article 12(1) of the agreement applies. If so eligible then paragraph 6 applies. If not so eligible then paragraph 8 applies with the levy being a credit against UK liabilities.
17.Paragraph 6 explains the effect on UK liabilities where P is eligible for clearance on qualifying amounts. In the normal case P gets full tax clearance – ‘ceasing to be liable to tax’ – (in respect of the four taxes to which the agreement applies) on qualifying amounts. But in a case where funds have directly or indirectly moved from the UK to Switzerland between 6 October 2011 and 31 December 2012 and form part of Cr then the tax liability on qualifying amounts relating to those funds remains in place and instead the appropriate part of the levy is a credit against that liability. The phrase ‘the tax due taking account of that amount’ is used to indicate all the tax liabilities in respect of a qualifying amount as set out in paragraph 19. Furthermore, as explained in paragraph 9 the phrase also includes associated liabilities to interest and penalties etc.
18.Paragraphs 6(7) to 6(9) contain a cap on the total qualifying amounts that are wholly or partially relieved under this paragraph. Where the levy is calculated on Cr the cap is the value of Cr. Where the levy is calculated on the non-domiciled self assessment basis, it is the value of the omitted taxable base. The cap is necessary because there is no direct link between a qualifying amount that has been paid into an account and the capital sum by reference to which the levy is applied. If the cap applies then the qualifying amounts are relieved in the order which is most beneficial to P.
19.Paragraph 7 clarifies what is meant by P ceasing to be liable to tax on a qualifying amount in relation to each of the four taxes covered by this Part.
20.Paragraphs 7(5) to 7(7) recognise that qualifying amounts (which are, by definition, previously untaxed) should have been returned and that the failure to do so may have resulted in too little tax being paid on items that were returned. The provisions ensure that despite the qualifying amounts being cleared, the liability on other items is what it would have been had the qualifying amounts been properly taken into account. To avoid having to recalculate settled liabilities as far as possible, the qualifying amounts are treated as the top slice of income, gains etc of the relevant period. But where there is additional tax to pay there is also liability to associated interest and penalties.
21.Paragraph 8 explains the treatment of the levy, on production of a Part 2 certificate, in a case where P is not eligible for clearance because one or more of the exclusions set out in Article 9(13) or Article 12(1) apply. The tax liabilities on all qualifying amounts remain in place and instead the levy is a credit against those liabilities, including interest, penalties etc. The credit is applied first to tax in the order set out in sub-paragraph (4), but subject to that, in the way that minimises P’s overall liability.
22.Paragraph 9 provides that clearance for tax liabilities or credit against tax liabilities includes clearance for or credit against associated ancillary charges to interest, penalties etc. Where a qualifying amount is part only of a larger taxable amount subject to ancillary charges, then an appropriate apportionment of those charges is made.
23.Paragraph 10 ensures that a repayment of tax previously paid is only due in the limited circumstances where any part of the levy is treated as a payment on account under the terms of the agreement. This provision is about repayment of tax, not about repayment of the levy (with which Article 15 of the agreement is concerned).
24.Paragraph 11 explains the meaning of terms used in paragraph 4 in determining whether an amount liable to tax is a qualifying amount potentially eligible for clearance. Sub-paragraph (2) defines terms for income tax and capital gains tax, sub-paragraph (3) for inheritance tax and sub-paragraph (4) for VAT.
25.Paragraph 11(5) makes explicit that tax clearance for P does not apply to liabilities that are in substance tax liabilities of another person but which have been transferred to P by HM Revenue & Customs (HMRC) under a specific statutory authority.
26.Paragraph 12 provides that if any part of a levy is repaid under Article 15(3) (by HMRC refunding the Swiss authorities) then to the extent that a certificate evidences initial payment of the amount repaid it is disregarded.
Part 3: The Future: income tax and capital gains tax
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.
Part 4: The future: inheritance tax
36.Paragraph 20 provides that Part 4 concerns inheritance tax. It applies where an individual P with financial assets in Switzerland dies on or after 1 January 2013.
37.Paragraph 21 explains that Part 4 is concerned with cases where a levy of 40 per cent of the assets of P is applied under Article 32 of the agreement. The paying agent provides a certificate to the appropriate person (the personal representatives or a beneficiary) which will specify the amount of cleared assets.
38.Paragraph 22 provides that the cleared assets are excluded from P’s estate with the result that no inheritance tax is payable on them. Clearance also applies to any associated ancillary charges.
39.Paragraphs 22(3) to 22(5) recognise that failure to include cleared assets in an account delivered to HMRC may result in too little inheritance tax being paid on other estate assets. The provisions ensure that despite assets being cleared, the liability on other assets is what it would have been had the cleared assets been taken into account. To avoid having to recalculate settled liabilities as far as possible, the cleared assets are treated as the top slice of the chargeable transfer. Where there is additional inheritance tax to pay there is also liability to associated interest and penalties.
40.Paragraph 23 gives effect to Article 32(6) of the agreement. It provides that the person delivering an account or further account under section 216 or 217 IHTA 1984 may elect to include the cleared assets. In that case clearance ceases to apply and instead credit is given for the amount of the levy against the inheritance tax due, with repayment if appropriate.
41.Paragraph 24 makes it explicit that the only circumstance in which the provision of a relevant certificate to HMRC entitles P to a repayment of any inheritance tax paid is as a result of an election under paragraph 23.
Part 5: General provisions
42.Paragraph 25 ensures that there is no impediment to the passing of information to the Swiss authorities under Article 36 of the agreement. There is a similar provision in section 173(4) of Finance Act 2006 in relation to other international tax arrangements.
43.Paragraph 26 explains that references to VAT include amounts invoiced as if they were VAT, recoverable as a debt due to the Crown under paragraphs 5(2) and (3) of Schedule 11 to VATA 1994.
44.Paragraph 27 defines the meaning of various terms in this Schedule.