Aug 26 2011

Dave Hartnett should resign

Posted by: Nick Shaxson in: Thoughts

Update: see the end of this blog.

I haven’t written much about the UK-Swiss deal (though I did speak on several radio stations yesterday, including the BBC’s flagship Today programme).

For the record, this deal is (to use the words of Christian Aid) a disgrace. It is a thoroughly rotten, shabby, money-grubbing deal, which colludes with criminality. It is a decisive victory for Switzerland over the UK. At a time of national soul-searching about a widespread moral deficit or collapse following the UK riots, it is astonishing that such a signal is being sent. Astonishing.

In Treasure Islands, I wrote in quite some detail about the appalling attitude to tax exhibited by Dave Hartnett, head of HMRC (the UK tax authorities.) I spoke at length to an insider from HMRC, who spoke anonymously, outlining just how bad things are. (You might also take a look at Richard Brooks’ testimony recently on another appalling Hartnett-sanctioned UK tax deal.) To save time on some of Hartnett’s failings on the latest deal, I’ll point readers towards this latest Tax Research blog looking at his attitude.

Hartnett has exhibited some disgraceful lapses of judgement, over many years, and this latest one is the last straw for me.

Speaking purely in a personal capacity here, I think it is time for Dave Hartnett to resign.

Please go.


And as regards what exactly is wrong with this deal, I’ve just written something here. Please read it.

This poses a terrible danger for the people of Britain and the wider world.

Update: I alerted a UK tax insider to this blog, and he said that while one should always be cautious about callling for the resignation of a civil servant, as they generally reflect and implement the wishes of their superiors, he agreed with me. This is what he said:

He [Hartnett] is no ordinary civil servant.  He has abrogated a great deal of power and taken control of tax matters from inter-governmental agreements to £20m investigations settled in cosy chats.  This was personal; he sees it as a legacy issue.

He’s courted a high public profile.  He’s broken down all the boundaries and controls.  And this is just what’s publicly known.  When it comes to the administration of the department he has sidelined people with any integrity and ability and promoted acolytes.  As a result he goes unchallenged and there are no credible alternatives to him at the top.

So I do agree with you.  I think he should have gone over the dodgy deals.  The Goldman deal – he just let them off £20m after a dinner at their place – is absolutely clear cut.”

Well said.

46 comments so far

Bill Kruse 8th August, 2011 8.06 am

I’m not astonished at all. This is formerly covert behaviour (favouring financial criminals) becoming overt. The Establishment don’t care for the rest of us, regarding us as cannon fodder in recent skirmishes and economic cannon fodder now. They simply aren’t bothering to maintain even the pretence of feeling any different these days. Are they overconfident or desperate? I couldn’t say. Perhaps it’s a little of both. But I fully expect more clear indication of the contempt in which the majority of us are held by the ruling classes (and their minions) in the months and years to come.


Alien Edouard 8th August, 2011 9.02 am

Nick –

These are the same principled arguments that you and others have been using for years if not decades. The problem is that the course of action that results have achieved absolutely NOTHING in terms of extracting tangible revenues from Switzerland and other private wealth management centers.

How do you reply to that?

Nick Shaxson 8th August, 2011 12.10 pm

Alienedouard your information is rather faulty. The Americans have taken a very different tack. They went on the offensive against the Swiss banks helping Americans break the law. They got a lot of information, and a lot of details. The British had this information handed to them on a plate by a foreign tax authorities – and instead of doing the same as the Americans have done – and they’d have got lots. They didn’t – instead they did this incredibly sordid deal. And you have to admit that it is a particularly squalid deal, don’t you?

kim 8th August, 2011 4.09 pm

How ironic.

You providing secrecy and anonymity to a disgruntled HMRC worker bee and allowing him to vent about how rotten his/her boss is.

While the Swiss are trying their hardest to defend the right to provide clients with secrecy and anonymity.

It’s almost as if to the Swiss, bank secrecy is as sacrosanct as say, a British journalist’s duty to his profession to keep his sources anonymous.


Jimmy Robinson 8th August, 2011 8.17 am


It is up to his Political Masters to tell him what to do and say, as he is a civil servant.
It is up to us who elect the Political Masters to advise civil servants what to say and do on our behalf. One has to ask is this happening?
It is all tending towards the unsatisfactory.


Jimmy Robinson

Nick Shaxson 8th August, 2011 12.01 pm

Jimmy Thanks, I thinnk that in general terms that one has to be cautious about calling for civil servants to resign. But I wrote quite a bit about Hartnett in Treasure Islands, and what I heard from my sources shocked me. He is a very curious civil servant, and his leadership style is quite extraordinary and he has a lot of power in his own right. So I stick by my call.

[…] Nick Shaxon at Treasure Island says that Dave Hartnett, HMRC’s permanent secretary for tax, should resign for his continuous lapses in judgment. […]

Alien Edouard 8th August, 2011 9.56 pm

Nick – it is disingenuous to compare the US and British way of dealing with undisclosed Swiss accounts. The United States are the world’s largest economy and dominant financial markets. They can apply pressure on Switzerland in a way that the UK, an economy 15 to 20 times smaller than the US and much poorer than Switzerland (per capita and possibly in absolute), will never be able to. You simply cannot compare the US and the UK, they play in different leagues.

This was compounded by the EU’s disarray on the issue of the EUSD revision. Automatic exchange was always going to be a very tough, probably impossible sell for Luxembourg and Austria. Whatever momentum may have existed was killed by Germany’s decision to start negotiations with Switzerland regarding their own treaty, because unlike the UK Germany had some (but not much) negotiating leverage over Switzerland.

There was an interesting comment on Murphy’s website (who btw seems to have completely lost his marbles on this) suggesting that the deal between Germany and Switzerland was agreed completely outside of the EU forum at an informal meeting of Europe’s five German-speaking countries in August 2010. I first thought that it sounded like a classic conspiracy theory, but after sleeping on it, I am not so sure anymore. What do you think?

Anyway, in answer to your question, the deal may be squalid, but it was the only one on the table. The alternatives you describe are simply unrealistic.

Nick Shaxson 8th August, 2011 8.31 am

AlienEdouard I keep seeing this reference to the UK being 15-20 times smaller than the US. The UK economy is well over twice as big as you think. You make a very weird statement too. The UK has in its possession information about thousands of tax-evading UK criminals.
It needs to do is apply the force of its law against them. Then you prosecute the intermediaries, and the account holders. As you go forward, the pips squeak, you get more information, about more banks and intermediaries. And so on. The net spreads sider. The fact of a country enforcing its own laws is nothing to do with its size. The UK was perfectly capable of doing this. instead, it chose the sordid route. And I am glad that you agree it is squalid. Which it is.

Alien Edouard 8th August, 2011 12.46 pm

I cannot see my original comment?

Alien Edouard 8th August, 2011 4.08 pm

Nick – ok, so the UK is not a mouse that tries to roar, it is, let’s say, a rabbit?

The exact species of the rodent does not change anything to the point I was trying to get across: the reason that the US strategy was successful is that they were able to force UBS, and later the entire Swiss government to cooperate, and eventually to disclose information about account holders. UBS and Switzerland only did so because they were under genuine pressure. This is something that the UK has no hope of achieving, ever. Bankers and other intermediaries will politely smile at the thought that the UK, acting alone, could apply any meaningful leverage. If anything, the US/UBS case proves that a country’s ability to enforce its laws in tax evasion cases is highly correlated to its size and global influence. In fact this is a point that you seem to make very often over at TJN.

You are of course correct that the UK has data about some evaders, and that it has a duty to enforce its laws, but you fail to appreciate the limitations on the British authorities’ ability to use this data for a variety of reason. For instance, it is of little to no value without Swiss cooperation, because only the Swiss can authenticate it. Therein lies a significant difference with the US/UBS situation, where the prosecutors had legally actionable information from whistleblowers. Furthermore, even if the data could be verified, there is the problem that it has been obtained illegally and it is highly doubtful that it could even be used in a court, certainly if the matter escalated to the European Court of Justice. So the prosecutors in the UK are playing a weak hand with their targets. That throws you right back to where you started, with no fundamental change to what has happened during the last 40 years: painful and expensive investigations where some investigation targets agree settle. The amounts raised will be small and the deterrent effect on other potential evaders limited. You may think that this is the morally right way to go, but just look at the numbers: the new agreement will generate in excess of $5 billion upfront and then $1 billion per year. How can you hope of ever matching this total from the few thousand evaders that get caught and agree to settle?

The core problem here is the EU’s failure to reach agreement between member states about a workable cross-border tax regime. It speaks volumes about the level of incompetence at the level of the Commission, which spent the last 5 years going ever further into the dead-end of demanding automatic exchange. Clearly Germany, which is after all the country losing the most in tax revenues, appears to have lost patience and decided to address with the matter directly rather than through the EU. You have not shared any thoughts as to why Germany made that deal (and neither has Murphy, who now reverted to his usual strategy any commentor that challenges him with facts). Any views?

Nick Shaxson 9th September, 2011 8.39 am

You say the EU has failed abjectly. That is because you don’t, I presume, know the details on the EU Savings Tax amendments. Although we don’t have all the details about the Rubik deals yet, we do have some. And the witholding tax option is likely to be frustrated by the use of foundations, discretionary trusts etc. which the EU amendments can and will tackle.

And on HMRC not being able to act on data, well that’s not true. Note this:

“HMRC yesterday confirmed it had received the information and intends to act upon it.”

I will write more fully when i have some spare time

AlienEdouard 9th September, 2011 9.13 am

Nick – I look forward to reading your further thoughts.

Don’t take for granted my ignorance of EUSD-related matters. I am knowledgeable enough about the issues you raise (trusts, foundations, companies, etc) and the fact that the EUSD revision is/was targeting this type of arrangements by making them paying agents, rather than the Swiss banks with which they may maintain accounts. The revision would also expand the scope of the EUSD to cover certain types of interest incomes which are currently not captured, and which are used in many tax avoidance structures. (There is a self-proclaimed “expert” or “consultant” who maintains a website on the issue of the EUSD revision(s) that has highlighted many of these issues, although often in a way that indicates that he does not really know what he is writing about. It is by the way immensely amusing that this “expert” on EU tax matters is based in ….. Zurich, maybe his partner is also a journalist?).

The revisions as contemplated would close many of the loopholes in the current EUSD that make it so ineffective. What is infuriating (from what I read) is that all these revisions have been accepted by all member states as well as Switzerland. The problem was, is, and will always be the demands for automatic exchange. If the EU had not pointlessly pursued this, the EUSD revision would have already been implemented.

The good news is that the EUSD revision and the bilateral agreements are not mutually exclusive, so there is still hope.

Regarding HMRC, please read my earlier post again. I am not saying that HMRC will refrain from taking action, I am only saying that it will do from a position of weakness. The stories over the weekend in the London Times and other newspapers were obvioulsy planted to scare current and potential targets into making disclosures and, eventually, settling. The problem remains that HMRC will be unable to use the HSBC Switzerland data as the sole basis of any legal action, but will need to uncover another “smoking gun” in their investigation.

Nick Shaxson 9th September, 2011 1.45 pm

Alienedouard, your description of the EU STD amendments seem to be pretty accurate except they raise one question in particular. I know the consultant you are referring to, and please indicate what you disagree with in his analysis of the EU STD. Please be very specific in your explanations.

AlienEdouard 9th September, 2011 4.17 pm

Nick – that would take time I do not have (I seem to be doing most of the writing here). But I notice that the “expert” has over the last couple of days removed all entries in the “latest news” section of his website that related to the Switz./UK and Switz./Germany bilalteral agreements. He had consistently predicted the failure of these negotiations, so I guess the “expert” was a little embarassed. (Fortunately the pages are still cached).

Will come back if/when I have time for a more substantive analysis.

Now the real question Nick: is his partner also a journalist?

Nick Shaxson 9th September, 2011 7.21 am

AlienEdouard – I don’t know if his partner is also a journalist. I honestly have no idea even if he has a partner or not. I don’t know him very well.

So the REAL question, you’re saying, isn’t whether you can stand up your claims that his analysis is wrong, but, er, um . . . whether his partner is a journalist? It’s a little bit of a strange question, I might even perhaps put it in the ‘weirdo’ category, but if you are so exercised about this, why don’t you ask him? His contact details are on his website.

And so I repeat my questions: what are your objections to his analysis? Please be specific.

[…] HMRC, which I believe to be an organisation filled with dedicated professionals whose work is tainted by its leadership, denied all this, of course: “This is complete nonsense, there is not a […]

Alien Edouard 9th September, 2011 8.33 am

Nick – The comment about his partner’s profession is sarcasm. Who said Brits understood irony?

The fact that the “expert” popped up regularly on Murphy’s blog to predict (i) the imminent signing of the EUSD revision, and (ii) the failure of the bilateral agreements, are enough to convince any observer that he has really no idea of what is going on. That is proof enough. The fact that he has cleansed his website of all the nonsense he had previously posted on the topics just add to it.

There have been countless instances of him being “owned” by contributors in the Chanel Islands. Also, the “expert” once had to be told that Switzerland is not part of the EU and therefore not part of the EUSD. Literally, he did not know that. Some “expert”!

Unfortunaltely time is short this week but if you go over to Murphy’s website, you will find plenty of smoking guns.

Still waiting for your own thoughts about the issue. Neither you nor Murphy seem able to explain why Germany did the deal.

Nick Shaxson 9th September, 2011 6.29 am

AlienEdouard, sarcasm involves something that at least has a point. Yours seems to have no point at all. It is just weird.

On the expert, if such an example re Switzerland does exist, which I doubt, it can only have been a result of hurried and careless drafting of a comment on a blog post, nothing more. Given that he is one of the architects of the EU STD, and has been working on it for several years, may I delicately suggest that it is you who doesn’t understand what’s going on?

Just a thought.

Now, once again, please do elaborate – and as I said, be specific – on what exactly he has got wrong.

Alien Edouard 9th September, 2011 9.23 am

Nick – your “expert” consistently predicted that (i) the EUSD would be signed by now, and (ii) that the bilateral agreements would fail. On both counts, and these are fundamental, he was WRONG. That makes him either incompetent or ignorant. Or Both. That is not difficult to understand, is it?

To illustrate the depth of ignorance regarding Switzerland, let’s consider this exchange over at Murphy’s (fyi: I refuse to post at Murphy’s after having been insulted a few too many times there in the past. If your “expert” friend gets in trouble with Murphy’s captive audience, that is not a good sign)

Darren: “…To start with, any agreement between the EU and Switzerland will be separate from the EUSD, and the negotiation of its terms will reflect the agreements reached with Germany and the UK…”

Mark: “…Switzerland is party to the EU Savings Tax Directive. In fact, they have an agreement to “expeditiously” adopt equivalent measures to changes to the directive as per clause 18…”

Darren: “… Switzerland is not party to the EUSD. The actual document between Switzerland and the EC (in fact its member states) is titled “Agreement between the European Community and the Swiss Confederation providing for measures equivalent to those laid down in Council Directive 2003/48/EC on taxation of savings income in the form of interest payments”. This agreement does not commit Switzerland to adopt any changes made to the Directive itself…” [NOTE: the Agreement between the EC and Switzerland does not even have an Article 18]

Mark: “… Switzerland has committed to agreeing to the changes as per the very agreement you mention [quotes Article 13 of the Agreement between the EC and Switzerland]…”

Darren: ” This article [Article 13] only commits the parties to consult with each other on one party’s request about technical aspects of the operation of Article 1. This is very different indeed from a commitment to agree to amend the scope, rates or other core terms (including any move to automatic exchange) of this agreement, let alone to align those with any revised EUSD. I assume that you are not [a] lawyer, otherwise you would have immediately identified that this article does not create any obligation for either party other than to, well, talk (endlessly if need be).

Mark: “[deafening silence, probably busy erasing some of the nonsense accumulated on his website]…….”

He has also been demolished repeatedly by the army of Jersey/Guernsey/Manx residents who regularly give Murphy a fisking (that stuff is too complicated for me, so I will not try). He is neither an “expert” nor an “architect”, just some mouthpiece for whoever is will ing to pay for services. In fact, if he were to be taken seriously he would not turn up on Murphy’s blog (of ALL people), to insult other contributors with his cocky one-liners, and embarrass himself in the process.

Liked the paper of China’s financial flows. That at least is “expert” stuff.

Nick Shaxson 9th September, 2011 6.28 am

Alienedouard, thanks for being explicit. In answer:

Let’s go back to the source.

“On 1 July 2005, the provisions of the Directive started to be applied by all EU Member States. The same measures in the Directive have also been applied, from the same date (and from 1 January 2007 for Bulgaria and Romania), in 10 dependent or associated territories of EU Member States through the implementation of bilateral agreements signed by each of the 27 EU Member States with these jurisdictions; and equivalent measures have been applied, from the same dates, in five European third countries, including Switzerland.”

Equivalent measures. From the horse’s mouth. Which I think means that ‘party to’ is accurate. I think that Darren, whoever he is, is merely trying to twist Mark’s words to mean something they didn’t, and then to attack that twisted meaning. And on the ‘demolished by the jersey/guernsey/iom folk, sorry to be a pain, but I’d be interested to see those arguments you mention too. Not trying to be difficult here, I am genuinely interested in these arguments. Thanks.

Alien Edouard 9th September, 2011 11.14 am

About your “expert” frined being owned by Jersey professionals, see this Murphy blog entry.

Nobody ever said it was easy or interesting, but the conclusion is clear. The “expert” got owned.

There is an absolute classic at the beginning of the thread, where the “expert” talks about a further delay in the EUSD revison.

“This is a minor hiccup, with the Italian Finance Minister not up to scratch with the technical details. This is a tiny wrinkle that will be quickly ironed out.”

Yep. That is the “expert”.

Nick Shaxson 9th September, 2011 2.17 pm

Sorry, I don’t understand what you are saying here. What do you mean by ‘owned?’

Alien Edouard 9th September, 2011 11.19 am

On the topic of equivalent v. identical see the EU Tax commisioner’s comment as reporte in an EU rag (picked up at Murphy’s):

“Semeta obviously does not see things that way. He explained: “The automatic exchange of information is the rule in the EU. The use by Austria and Luxembourg of the withholding system was authorised only for a transitional period. Things are different for non-EU countries: the Union asks them to apply measures EQUIVALENT to its own, not IDENTICAL measures. What counts is that they respect OECD standards on the exchange of information on request.” Heated exchanges are no doubt looming.”

[emphasis added]

Do you understand the difference now? Please translate for the “expert”.

Nick Shaxson 9th September, 2011 2.15 pm

OK, I have now gone back to the original post which you are referring to. I see that you have quoted very selectively, and misleadingly, from it. First, Darren’s first words were “I would surely be out of my depth if I tried to debate with Mark Morris on this issue.” So he, at least, is on my side in this particular respect. But you are citing him as your expert. Second, you say that the agreement ‘does not even have an Article 18″ – but you you must be looking at the wrong document. It’s clear from the original document that he was referring to this one And if you scroll down, you will find Article 18. Third, you say that someone has asserted that ‘equivalent’ means ‘identical.’ As far as I can tell, they haven’t. I feel you are twisting yourself into contortions here.

As regards your other comment, I decided not to approve it as I felt it (just) failed the civility test. It wasn’t that bad, but it wasn’t great either. Please stay civil. Also, I don’t like comments like ‘Now, your turn to work a little.” I am not anybody’s monkey, and I will dance to my own tune, thank you.

If you feel like objecting, I operate on the Barry Ritholtz platypus rule, see 5b here I am not accusing you of trolling, not at all, I find your objections often challenging and useful, actually – I am merely explaining my ‘platypus’ grounds for the deletion.

Alien Edouard 9th September, 2011 7.38 am

I am happy to admit that the agreement has an article 18 (my mistake). However, could you please point out where this article 18 says that Switzerland has committed, in Mark Morris’ words, to “expeditiously adopt equivalent measures to changes to the [EU] directive”. Don’t waste too much time looking, it ain’t there.

I am however not citing anybody as an expert. On the contrary, it is you who is describing Mark Morris as an “architect of the EUSD”. May I respectfully ask you again to explain why the “architect” has consistently predicted the success of the EUSD revision and the failure of Rubik, and has bee proved completely wrong on both counts. If there is a good explanation, let’s hear it.

As for Semata’ statement, let’s have another look: “The automatic exchange of information is the rule IN THE EU. The use by Austria and Luxembourg of the withholding system was authorised only for a transitional period. Things are DIFFERENT for non-EU countries….” (emphasis added).

So, how can Switzerland be a party to the EUSD (whose basic premise is automatic exchange), while at the SAME TIME be subject to different rules (OECD standards)? Hummmmm….

Nick Shaxson 9th September, 2011 7.58 am

Alienedouard, i do think you are tying yourself in knots about this equivalent / identical distinction. I think you are twisting his words to attribute something to him that he didn’t say. It seems to me, on reviewing the evidence, that what he said was right, and btw there is no way to ‘prove’ whether he is right or wrong on Rubik because the details have not yet been published.

Mark Morris 9st September, 2011 9.24 am

To Alien Edouard

Hi. I have never read Nick’s website and only came across your thread today. A couple of things quickly…

“Self professed” expert. Well yes, since early 2005 until today, I spent well over 3,500 hours working directly with the EU Commission Tax & Customs Union on the EU savings tax directive amendments. I was the only external party on the “attack side”, although there were hundreds on the “defense side”. And yeah, I was the key architect of change. Without me, they would have started only three years later. Also I was the one who deemed the settlor / founder as a beneficial owner of a trust / foundation. The HMRC would never accept this concept on their own. It was me who recommended the tax on capital guaranteed structured products and other derivatives. It was me who described how banks circumvented UCITS by the use of Non-UCITS… and how the Caymans and BVI magically recategorized all the UCITS-equivalent to be non-UCITS equivalent overnight merely by requiring annual reporting instead of quarterly. It was me who described in detail how insurance wrappers were a potential loophole and how the insurance industry defensive arguments were bogus. I can also tell you that we are working on a second revision because there are still some technical loopholes. It was me who focused the attack on IBCs because the EU Commission wasn’t even aware one could use say, Hong Kong incorporation papers to open account in Switzerland, etc.

As for your opinion that I don’t know what I am talking about or that I didn’t know that Switzerland was not part of the EU, shove it. That was an inane accusation by Darren.

As for the reasons you deem for me quickly wiping out my commentary on the failure of the Swiss German tax agreement, you must be smoking weed. My comments were based on the Rubik proposal. Obviously the final agreement may be completely different and therefore my comments need to be updated based on the actual text, being released today. However you can be assure I will comment on the failure if there are loopholes, as I already see there will be.

Only a tool would think I am “owned” by Channel Island scumbags who think that it is acceptable to appoint a majority of trustees of Jersey trusts to be resident in Singapore to avoid the Paying Agent Upon receipt obligations. This is now being taken into account for the 2nd review (and further reviews every 3 years), and we can all thank Darren for his contribution to help close that loophole. There will be more anti-abuse clauses. Thanks Darren, we owe ya!

You challenge my “so called” expertise on this matter. I challenge you to find someone who knows the directive as nearly much as me. I have replied strongly even to the head lawyer of Luxembourg banks on his misinterpretation of some clauses.

As for some comments that you find hilarious, e.g. minor technical wrinkle from Italy… Well you can carry on laughing on the other side of your face because that is a direct quote from the EU Commission.. a close contact I note you don’t have. In fact most of my comments are direct quotations from them. Very funny comments, aren’t they?

The one thing I do wholeheartedly agree with you is the link of automatic exchange of info to the directive changes. I unsuccessfully recommended from early 2006 to regard this as a separate topic. There is indeed two opposing parties on this linkage within the EU Commission and EU Council.. Something will be sorted out soon.

When scoffing at my expertise, then please point out one technical incorrect detail I state. What you don’t realise is I have daily ongoing contact with the EU Commission on these matters, and I know all the future strategies.. Whereas you know squat all about the future.

If you don’t like my abrasive tone, tough. I don’t need to be politically correct nor be pleasant to tout for business from scumbags and their immoral supporters.

Mark Morris 9st September, 2011 9.42 am

To Edward..

To Alien Edouard

Love your inane accusations:

Explain why the “architect” has consistently predicted the success of the EUSD revision and the failure of Rubik, and has been proved completely wrong on both counts. If there is a good explanation, let’s hear it.

As for mocking the expected imminent success of the EUSD in May and me being “proved completely wrong”, well you’re a clearly a fool. At that time only Italy was vetoing the proposal because it wanted an anti-abuse clause, which the EU Commission is drafting. Once Italy was appeased, it was going to pass in the next vote, after all LU / AT did not veto it in May. It was only in July that LU / AT again popped up with their complaint about automatic exchange of info. The reason being, fool, is that the EU Council actually told those two Members the automatic exchange of info was indeed a separate issue. However this was not reflected in the actual text being proposed in the July meeting of ECOFIN. It seems the EU Commission may be at fault here regarding the opposing views.

BTW, I can assure you the EU Commission will veto the 26.375% withholding tax on interest in the Swiss German tax agreement. That you can, proverbially, take to the bank.

“Hopefully you remove the quotations from “architect” in future. As for failure of Rubik, the text will be released today.. So let’s see if there will be loopholes as I predict. If there are loopholes, then the agreement will fail. I’m going out on a limb here, before the text is released, but expect the following loopholes at least

Failure to include foreign branches ? It would be easy to include foreign branches of Swiss banks. This would capture clients fleeing to Singapore branches of Swiss banks.

Which entities / arrangement swill be exempt?

The Rubik proposal focuses on domiciliary companies and fiduciary arrangements which do not have manufacturing or commercial purpose. The EU savings tax focuses on untaxed entities and arrangements. Would a German resident use his own German or other EU taxable company company to hold an undeclared Swiss bank account?
What if UK resident establishes a Panamanian consulting company, which is then classified as a “commercial” operation outside the scope?

Will the individual who originally contributes the assets to a trust / foundation be deemed as someone who has beneficial interest? A discretionary trust has no beneficiaries. The EU savings tax amendments tackles this loophole by going after the principal settlor / founder (not a nominee or agent).

Paying Agents Upon Receipt concept doesn’t exist in Rubik.. So major screw up if ever. Bank account outside Switzerland held by entities / arrangements but managed in Switzerland e.g Bahamas bank account for a Bahamas trust but managed by trustee in Geneva. This is in our savings tax amendment but not in Rubik. We shall see…

There is no “Paying Agent Upon Distribution” concept in the Swiss tax agreement. Must a foundation / trust keep track of interest / income for at least ten years? Can trusts / foundations delay withholding tax until distribution decades in the future? Can trusts / foundations distribute income / capital gains in the future in the form of wages, loans, etc which may be outside the scope of the agreement.

Is the definition of “other income” equal to only “capital income”?

There are other loopholes I am certain will exist, but I am certainly not going to aid scumbags.

Alien Edouard 9th September, 2011 5.15 pm

Waww…. “shove it”, “scumbag”, reference to narcotics. If you are an EU expert, what is the average EU paperpusher? a soccer hooligan?

I am not sure what point, if any, you were trying to make, but I picked up this “BTW, I can assure you the EU Commission will veto the 26.375% withholding tax on interest in the Swiss German tax agreement. That you can, proverbially, take to the bank”.

What is it that you do not understand here? the EU Commission is IRRELEVANT. Switzerland is not part of the EU (eventually that will sink in), and therefore not bound by any EU treaty or directive. There is absolutely nothing that the EU Commission can do. And before you start objecting that Germany is bound by EU treaties, remember that taxation is a national matter. Germany can decide how it taxes its residents, on what basis and at what rate. It can decide to tax them at ZERO if it chooses to.

It must be tough for all of you on the EU Commission’s side to accept that you have been out-smarted, out-manoeuvered, marginalized, and made to look like total political amateurs.

It is not like you had not been warned.

Nick Shaxson 9th September, 2011 8.58 am

Alienedouard – I suggest you do perhaps a little tad more research before getting so hyped up. Why do you think Switzerland has agreed to so much of what the EU wants? Do you think it could be a teeny bit because of the rather trivial matter of having access to EU markets? And, er, I think you will find that the EU can indeed veto such deals, if the right conditions are met.”

Alien Edouard 9th September, 2011 9.59 am

Nick – what exactly has Switzerland agreed to that the EU wanted?

Mark Morris 9th September, 2011 8.23 pm


Direct from the horse’s mouth… the 26.375% is in direct contravention of existing EU directive legislation. Not hard to understand. The law says categorically Switzerland must deduct 35% tax. Not less.. More, maybe but not less :). They’ll come down on Germany like a ton of bricks for accepting this. Court action is next, my soothsayer tells me.

Mark Morris 9th September, 2011 8.29 pm

Switzerland is indeed bound by the EU savings tax directive. It can’t make agreements with the EU and break them as it sees fit. Switzerland is not an island. It can be booted out of the Schengen and Dublin accords, lose its trading privileges, etc. Imagine another “slowdown” at the border like in 2004 closed and trade stopped.

Mark Morris 9th September, 2011 8.38 pm


Sorry chap. EU Member States can’t decide what they want to do once an EU directive is legislated.

Alien Edouard 9th September, 2011 9.49 pm

Mark – are you playing dumb, or is it a real medical condition? Let’ try one more time: Switzerland is not part of the EU, and is not a party to the EUSD. Whatever that document says is irrelevant.

The only agreements that Switzerland is party to are the the 2005 series of bilateral treaties with each member state replicating some clauses of the EUSD (and some double taxation agreements). Switzerland is free to vary the terms of these agreements with its counterparty as it sees appropriate, as any sovereign state can. The EU Commission is not a party to these agreements and therefore whatever comes out of the horse’s mouth is irrelevant.

There is a possibility that the EU may challenge Germany, but that could not be on the basis of a failure to apply the EUSD (Germany dutifully applies the EUSD with all member states). The Commission would have to demonstrate that the variation of its bilateral agreements with Switzerland creates an impediment to treaty freedoms. That is setting the bar very high. Good luck with that.

Remember incidentally the current situation; there is no way that the EU Commission will pick a fight with Germany at a time where it needs every last Euro of German support the prevent the entire thing from collapsing. Germany could tell the EU to “shove” it, and that would be the end of the matter.

As for your conspiracy theories regarding “slow borders”, expulsion from Schengen and Dublin, etc. I would respectfully suggest that you are getting over your skis (very Swiss that).

Nick Shaxson 9th September, 2011 8.02 am

Alienedouard, once again, read those earlier points that were made. The EU has enormous leverage over Switzerland. It can’t get everything, but it can get a lot. What part of the word ‘negotiation’ do you not understand?

Mark Morris 10nd October, 2011 9.49 pm


Sorry chap. You are indeed misinformed.

I’ll bet you a dollar to a donut that the EU Commission has the right to stomp on Germany’s nuts regarding a bilateral agreement that is in direct conflict with an EU directive. And that, my friend, is straight from the horses mouth. Take that to the proverbial bank.

And Germany telling the EU to “shove it..”, ha ha the European Court that will sort this out. You’re only good for a laugh or two at most.

So Switzerland can change, con, bluff and twist as much as it wants… but it’s Germany that has its nuts in a vice.

And by the way, I was 100% correct when I said the Rubik tax would be a failure.. I didn’t say the negotiations would fail. I said the “agreement” will be a failure. It’s full of loopholes, even worse than I expected. I don’t expect the Germans will collect more than 10% of what they’re expecting… and Nick can inform you more on that. So an apology from you would be in order.

Alien Edouard 10th October, 2011 8.10 am

Mark – It looks like we are making progress, and that you are at last starting to understand a few things (you don’t need to thank me for that). You seem to have finally accepted the fact that Switzerland is not a party to any EU legislation, and definitely not to the EUSD and that there is therefore precious little your good friends at the Commission can do about that.

You also seem to have understood that only Germany could be potentially challenged for the terms of its bilateral agreement with Switzerland. It is time to explain to a few other things that. It has to do with law and politics.

Under EU law, the Commission cannot challenge Germany for a breach of the EUSD, but only on the basis that the bilateral agreement with Switzerland (a non-EU state) somehow affects/infringes on the treaty freedoms of any person or entity resident in the EU itself. Interestingly, the only EU entities that could argue that they are being put at a disadvantage would be the financial institutions established in those EU jurisdictions that apply the withholding regime. In essence you are suggesting that the EU Commission would challenge Germany to the ECJ to protect the Austrian and Luxembourg banks applying the withholding rate of 35%. As much as we would all love to see this, unfortunately on has to accept that even by EU standard, this is absurd. (You and your friends get some legal advice, occasionally)

As for politics, Mark, I am prepared to admit that you are possibly a very good tax “technician” but you seem to be frighteningly unaware of what is going on around you. If you read a newspaper or watched the news for a few minutes you would catch pretty quickly that there is a bit of a crisis across the EU and that tax is not exactly the EU’s first priority at the moment.

You may want to reflect that relationships between EU institutions are driven more by politics than by what is in the texts. Right now, (and for the foreseeable future) it is Germany that holds the EU by the “nuts” rather than the other way round. Come to think of it, the UK is not in a bad place either following Barroso’s bizarre decision to get himself involved in the FTT debate. The prospects of the Commission taking Germany (or the UK) to Court over their bilateral deals with Switzerland are simply non-existent.

Your record of predictions on all EU tax matters is, to say it politely, mediocre. For all your name-dropping and mentions of your “friends in high places” (get real, it is the EU Commission, NOBODY wants these jobs!), your ability to forecast outcomes is, well nil. My favorite moment remains the bold prediction at Murphy’s that “the [EU] directive will pass unanimously by July” or that the successive delays amount only “a minor hiccup, with the Italian Finance Minister not up to scratch with the technical details. This is a tiny wrinkle that will be quickly ironed out.” It is all here

You really seem to know what you are talking about. This kind of things really must have built your confidence…. NOT

Nick Shaxson 10th October, 2011 12.04 pm

Alienedouard – when in a hole, it’s best to stop digging. Advice worth thinking about.

Alien Edouard 10th October, 2011 1.04 pm

Nick – Please point out what is incorrect in the analysis above. Even the “expert” Mark seems to be understanding a few things. If there is anything you feel the rest of us should know, please lay it out rather than resorting to the cocky one-liners of those that have run out of arguments.

Nick Shaxson 10th October, 2011 11.51 am

er, alienedouard, it isn’t a question of running out of arguments, it’s one of running out of time. I have plenty of other things to do, thanks. Take a look at what you wrote, and read the news from time to time, and enlightenment will come. Sorry, I genuinely don’t have more time now to engage. Been very busy of late.

Mark Morris 10th October, 2011 9.25 pm


I certainly hope you come back to this blog to issue an apology when I’m proved correct.

Nick Shaxson 10th October, 2011 11.52 am

mark, not sure alien is the apologising type, but i’d be delighted to be proved wrong when the moment comes

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