Pressure eases on banking secrecy as EU tax plan unravels

Banking secrecy has helped Switzerland attract billions in overseas funds Keystone Archive

European Union attempts to force Switzerland to give up banking secrecy look likely to fail.

Switzerland has been standing firm in the face of EU pressure, but now it seems to have received a boost from an unexpected quarter – namely the United States.

The pressure on banking secrecy stems from Brussels’ plan to clamp down on tax evasion by persuading countries to hand over information about EU citizens’ savings. This would compromise Swiss “customer confidentiality” rules and, says Bern, threaten Switzerland’s position as a financial centre.

Indications are that the Bush administration is not prepared to go along with the EU’s “Savings Tax Directive”. This has not yet been made official by the White House, but is expected to be confirmed shortly, according to the Wall Street Journal.

Insiders say such a decision would mean that other countries, such as Switzerland and some EU member states, will be far better placed to resist pressure from Brussels. Indeed, some US commentators say Washington’s position “is the final nail in the coffin” for the EU proposal.

U-turn

Officials close to the negotiations between Switzerland and the EU told swissinfo that Brussels had already indicated that if it cannot persuade “third countries”, such as Switzerland and the US to come on board, it would back down.

In a recent interview with swissinfo, James Nason of the Swiss Bankers Association said that without Switzerland, the EU’s planned tax regime was almost certain to fail.

“EU countries want to have an automatic exchange of information system up-and-running by next year,” he told swissinfo. “But they have made the success of that system dependent on the co-operation of non-EU, third party countries such as Switzerland.”

The alternative, proposed by Switzerland, is a withholding tax, which Bern would deduct from EU citizens’ savings interest and send to Brussels. This would not contravene banking secrecy because no transfer of information about the account holders would take place.

The Swiss government has long maintained that it will not negotiate over banking secrecy. Switzerland’s financial sector accounts for over 12 per cent of gross domestic product, and the country manages about 35 per cent of the world’s private and institutional offshore funds, estimated at $2 trillion (SFr2.89 trillion).

Conspiracy theory

Officials in Brussels could be forgiven for thinking that Switzerland and the US have been conspiring to destroy their grand tax plan. Swiss officials privately admitted to swissinfo that their positions on the issue are now almost identical to those of the US.

Both Bern and Washington take the view that tax evasion is best combated by lowering taxes rather than through legislation.

And banking secrecy, once a sore point in Swiss-US relations during the scandals over Holocaust era assets in Swiss banks, is no longer an issue for Washington.

Indeed, a string of high-ranking American officials have visited Switzerland since September 11, and all have given glowing reports about Swiss cooperation in the war on terror, and the fact that banking secrecy has caused no problems.

by Jonas Hughes