Talk about pinching your pennies – HSBC had an evasion scheme for customers to avoid paying a 15% withholding tax on interest earned on hidden money.

Good grief.

Not only are we talking tax felons. We’re talking cheap tax felons.

2/10 – The Guardian – HSBC files: Swiss bank aggressively pushed way for clients to avoid new tax – Part 3. HSBC developed a specialized product they presented to lots of their clients. Lots bought it.

Problem: If you have money hidden in Switzerland, there is a tax treaty that requires the banks to withhold 15% on the interest earnings and turn the withholding over the British treasury. No reporting of individual names or amounts, just one lump sum sent to England. Apparently letting the crown have 15% of your interest is too much for some blokes.

Wrinkle: The withholding only applies to individual accounts, not corporate accounts.

Solution:  The bank will, for a fee, set up a shell corporation in Panama or somewhere else, have you named the ‘beneficiary’ but not owner, set you up as the twice removed owner so you keep control of the funds, move the money into what is now a business account, and stop withholding the 15%.

Cost: Several thousand pounds a year.

Breakeven: Let’s assume it is £2,100 a year. If that is equal to the taxes, the earnings would be £14,000 at 15% withholding. Assuming 1% interest rates, that would be a breakeven at £1,400,000 in an account for which you committed felonies to get the money to Geneva unreported.

So if you have more than around £1.5M hidden in HSBC accounts, the customer-centric bankers can make it worth your while to avoid the 15% withholding.

Work with me here. At a million and half pounds it is a wash.  If you had £3M with those assumptions, you would be ahead £2,400 (.£3M x 1% = £30K interest x 15% withholding rate = £4,500 tax evaded (not avoided, evaded), less £2,100 fees  = £2,400 to the positive). That would increase your after tax returns by just under a tenth of one percent (.08%).

Keep in mind the bank wasn’t about to report you to the British taxman, merely give them anonymously a 15% cut on your interest.

So with a few thousand pounds of costs a year, lots of paperwork, dealing with rules in countries that don’t take kindly to anyone ever asking questions, extra layers of complexity, and another felony charge by the way, then you won’t have to fork over one-eighth of your measly interest earnings on your illegal stash.

Good grief.

2/11 – The Guardian – HSBC files show Tories raised over £5m from HSBC Swiss account holders – Part 4. Not much news here. Lots of discussion of people with accounts at HSBC who are also donors in the British political world.  All named persons in the story insist they have paid all taxes due on all funds overseas.  Pounds donated to Tories outnumber Labor by ten to one. Include a huge “loan” to the Labor side and the funding is about two to one.

Super rich people donate to politicians. Eh.

3 thoughts on “Talk about pinching your pennies – HSBC had an evasion scheme for customers to avoid paying a 15% withholding tax on interest earned on hidden money.”

  1. Pingback: Want to see where the money is from in the HSBC laundering story? Check out Martin GrandJean’s data visualization | Attestation Update - A&A for CPAs

  2. Unless I’m misunderstanding, I think many are ok paying 15% of their interest in exchange for the anonymity it provides the other (untaxed) 85%, and to help conceal the sources and ownership of the underlying capital.

    1. Hi Keith:

      I would make a guess that lot’s of people would be fine with letting the bank take 15% of interest earned, lump it with all other withholdings and remit one check to the tax authority. That approach has no risk of disclosure to the home country.

      For those who don’t want their home country even to get one-eighth of their one or two percent interest, HSBC has a product to move the earnings to no-withholding corporate accounts.

      Thanks for commenting.


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