Under mounting pressure, Switzerland is rapidly expanding its administrative assistance to countries investigating tax offences. A new chapter opens this week in Jakarta at the Global Forum on Transparency and Exchange of Information for Tax Purposes.
“It’s already clear that Switzerland is a favourite whipping boy internationally,” says Peter V. Kunz, professor of economic law and comparative law at the University of Bern.
“It has made considerable progress in certain areas in recent years, but because progress is slower than in other countries, the finger is still being pointed at Switzerland,” he told swissinfo.ch.
Switzerland has reduced banking secrecy in a series of steps over the past few years. The most recent such step was the legislation on tax administrative assistance, which came into force on February 1 this year and now also allows group queries.
The next revision is already in the pipeline and will come before parliament in December. The most important change is that foreign account holders will not be automatically informed in advance when their data are forwarded to another state.
Parties on the political right have already come out against the proposed change, but Kunz plays this down.
“A few years ago we set a precedent of the worst kind regarding this very issue. That was when the financial regulator released UBS data of American customers,” he said.
“The people affected were only informed when the data were already in the US. That action was criticised at the time as flouting the rule of law, and rightly so. Yet it must be said that in the draft legislation, not informing those affected in advance will only be allowed in exceptional cases.”
A further revision of the legislation will shortly be unveiled by the government. This concerns bearer shares – shares that are owned by whoever holds them, rather than having an owner registered with the issuing company. Holders of these shares will no longer be allowed to remain anonymous. Parliament is to deal with this issue in spring 2014.
Since the government decided in March 2009 to provide administrative assistance in the case of tax evasion and not just tax fraud, Switzerland has concluded double taxation agreements with 42 states, in compliance with the rules of the Organisation for Economic Co-operation and Development (OECD).
Peter V. Kunz
A few years ago we set a precedent of the worst kind.
In spite of this considerable progress, the State Secretariat for International Financial Matters (SIF) expects that Switzerland could come under pressure at the Jakarta Global Forum on November 21 and 22.
The OECD-sponsored meeting in the Indonesian capital will rate the first 50 participating countries on their sharing of tax information. Switzerland is due to be rated in spring 2014 at the earliest, and thus is not going to be in the spotlight in Jakarta.
Yet the countries that get bad marks could bring pressure for countries yet to be evaluated not to get any preferential treatment, according to the SIF.
“Every so often you get to be a scapegoat, not least because other countries have not done all their homework either,” Kunz said.
Countries to be rated in Jakarta include Luxembourg, Austria, Britain, Monaco and the Cayman Islands, all of which are competing with Switzerland for international financial business.
Room for improvement
The Global Forum, which Switzerland joined in 2009, has 120 member countries. Countries become eligible for the second phase of membership, which involves rating, if they have fulfilled all the regulatory requirements for administrative assistance.
What they are then rated on is effectiveness of implementation. Switzerland still needs to improve on legislation and a number of bilateral agreements in accordance with OECD standards, relegating it to phase one along with 13 other countries, among them Botswana, Lebanon, Liberia, Panama and Vanuatu.
To get to phase two, Switzerland has to improve in at least one of three main areas: administrative assistance legislation, company law and number of OECD-compliant bilateral agreements.
Resistance in parliament to the new legislation is to be expected, but even if – as has happened previously – parliament finally grits its teeth and passes the law, it will then be time for the next unpalatable item on the agenda: administrative assistance even in the case of stolen data, where the state requesting assistance has acquired the data from another state.
Helping to break the law
Last summer the government wanted to present the administrative assistance bill to Parliament in this form. But because of formidable resistance, it finally dropped the item from the planned legislation.
India in particular is pressing for the right to follow up on data about tax dodgers on a CD stolen by a former employee of the HSBC bank, by means of a request for administrative assistance. So far Switzerland has declined these requests, citing its tax administrative assistance legislation.
“This is two-faced politics that the diehards in parliament are carrying on. Data on CDs are absolutely crucial, as long as we do not have automatic exchange of information,” Andreas Missbach, head of the department of raw materials, trade and finance at the NGO Berne Declaration, told swissinfo.ch.
Switzerland was the first to break the law, Missbach said, countering the objection of the at least questionable status of stolen bank data under the rule of law.
“For years, systematically, it gave people help in breaking the law in other countries. As a result of Switzerland’s morally untenable position, a market for such data arose. It makes no sense for Switzerland now to make a big fuss when these data are used for what they are good for – namely, tracking down tax evaders.”
Missbach and Kunz agree that the issue of administrative assistance in the case of stolen bank data will be of relevance to the rating of Switzerland by the Global Forum in the second phase.
In other words, Switzerland will have to cave in on this issue too, because, while the Forum just makes recommendations, the G20 have called on the states to implement them.
“Even if it’s only a matter of recommendations, it’s going to be essential that Switzerland get to phase two and accept the recommendations made. Standing aloof would not only mean damage to our reputation, but it could eventually lead to sanctions being imposed,” noted Kunz.
(Translated from German by Terence MacNamee), swissinfo.ch