Banker loses case over £57k taken under UK-Swiss tax agreement

A Swedish banker who had £57,000 taken from her bank account by Credit Suisse to comply with the requirements of the former UK-Swiss tax cooperation agreement has lost a claim in the High Court for a refund of most of the levy from HMRC on the grounds that the amount of tax in dispute was under £7,000

The case concerned Karin Vrang, a Swedish national who worked in Switzerland for Credit Suisse Asset Management between 1998 and 2005, when she moved to London. She had three bank accounts in Switzerland with Credit Suisse, into which she put her earnings while there and her encashed Swiss pension. The money in those accounts was to be used when she retired to Sweden. [Karin Vrang and Commissioners for Her Majesty’s Revenue and Customs, [2017] EWHC 1055 (Admin)].

Bank letters

Credit Suisse sent her two letters in 2012 alerting her to the UK-Swiss agreement which was originally set up in 2011 and subsequently terminated at the end of 2016.

The bank’s letters warned Vrang that if she did not give voluntary disclosure of her Credit Suisse accounts to HMRC, Credit Suisse would take from her accounts an unspecified one-off payment, calculated by reference to a formula in the agreement. This payment would absolve her from all past UK tax liabilities on those assets including penalties and interest. It would, in return, enable her to maintain her anonymity from HMRC, and the confidentiality of her Credit Suisse bank accounts.

Vrang took no action in response to those letters. On 31 May 2013, Credit Suisse took a payment of £56,715, which was increased in December 2013 to £57,865.

Vrang was issued with the certificate by Credit Suisse, which she could show to HMRC should the UK tax authority seek tax due in the past from her in respect of those assets. The sum was passed to the Swiss Federal Tax Administration (SFTA), which intermingled it with sums levied from other people, and transferred those intermingled monies in a series of lump sums to HMRC.

In normal circumstances, as was intended by the agreement, HMRC would not know who had paid the levy, or how much, unless the person from whom the levy had been taken had to rely on the certificate for some tax-related purpose.

However, Vrang was taken aback when that money, and so much of her savings, was taken. She wrote to Credit Suisse saying that the payment had been wrongly levied but took the issue no further after it rejected that claim. The High Court heard that in June 2013, she made what she says is the disclosure which would have prevented the levy being applied, though that is not accepted by HMRC.

At that point, Vrang wrote to HMRC saying that a sum, which has varied between £1000 and £7000, was due in tax and sought a refund of most of the levy from HMRC. It refused to pay a refund on 9 December 2015 of the levy less any tax liabilities due, penalties and interest.

High Court challenge

Vrang then took the case to court, where her argument was that there is no Parliamentary authority for the levying of the sum, and so it cannot be levied, where there is no tax due in that amount; if there is legislative authority to that effect, it has been misconstrued in a number of respects by HMRC and that HMRC has not exercised its powers, notably its discretionary powers, lawfully.

Other points raised were that HMRC had no power to retain money which did not represent a tax liability, when the tax payer asks for it back; the levy breached the provisions of Article 63 of the Treaty on the Functioning of the European Union as it was a restriction on the free movement of capital, which lacked the necessary justification, and was disproportionate; and it breached EU human rights rules, being a disproportionate interference with Vrang’s property rights.

In evidence, Vrang told the court she had also assumed, based on her experience of working in the financial sector that ‘a regulated financial entity, could not offer a default option (not replying) where clients would be in a worse position than if they had acted on the letter.’

The letter did not say what the deduction would be nor highlight ‘the potential disastrous consequences of my failing to do anything.’

In addition, the letters gave no indication that the lump sum could be quite unrelated to any tax due. Vrang said she believed the UK-Swiss agreement was not aimed at those who, like her, were not tax evaders, had no tax advisers, paid their taxes and expected to be treated fairly and she felt liabilities to HMRC should not accrue from a failure to answer letters from a bank.

For its part, HMRC argued Vrang had been given sufficient opportunities to make an election for disclosure, which would have prevented the one-off payment.

In a letter to her, HMRC said: ‘Whilst in your case the one-off payment may not have been the commercially best option available to you, it is unfortunately not possible for us to reverse it. The circumstances outlined in your claim do not meet the high threshold needed to establish hardship at the margins. We would therefore be stepping beyond the limited discretion available to us if we were to offer a refund in your case.’

No ‘bespoke’ arrangement

 The court found in HMRC’s favour, saying that ‘what the claimant was really seeking to do was to create a new class of refund claimants or a bespoke arrangement applicable to her own particular circumstances, and perhaps only suitable for them.’

Vrang has indicated she will seek leave to appeal the judgment.

HMRC said: ‘We welcome the court’s decision. HMRC works hard to secure all taxes that are due, including by defending our claims in the courts.’

The UK-Swiss tax agreement proved controversial during its lifetime, as in evidence to the public accounts committee (PAC) in October 2013, HMRC admitted its forecasts of how much would be raised were 'inaccurate' and it was likely to see only a quarter of the original forecast of £3.2bn in additional tax.

HMRC officials told MPs that the total recovered at that point was £782m, saying that the 'secrecy' surrounding the Swiss banking system was to blame for the shortfall.

Karin Vrang and Commissioners for Her Majesty’s Revenue and Customs, [2017] EWHC 1055 (Admin) is here

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