Swiss battle OECD “blacklisting” threat

Bern rejects OECD criticism of its tax practices Keystone Archive

Switzerland is under mounting pressure from the Organisation for Economic Cooperation and Development to scrap tax rules that make the country attractive to foreign holding companies.

The OECD is considering a plan to single out Switzerland for having “harmful tax practices”.

Bern is fighting against the country’s potential appearance on a so-called “sinners’ list”.

“This is not acceptable,” Daniel Eckmann, a finance ministry spokesman, told swissinfo.

International firms including Wal-Mart, Philip Morris, Gillette and Procter & Gamble base their headquarters in Switzerland, drawn to the country’s low corporate tax rates and attractive financial conditions.

However, a body within the OECD, known as the “Forum on Harmful Tax Practices”, is considering a proposal to blacklist Switzerland as a haven for holding companies.

Although the move would not create any legal obligations on the Swiss, it could tarnish the country’s international image and undermine its attractiveness to foreign firms.

Heightened sensitivity

The OECD threat dates back to 1998 when the organisation launched the forum as part of its global fight against tax evasion.

In June 2000, Switzerland was listed among dozens of developed countries as having “potentially” harmful practices. Since then, governments around the world have been modifying their taxation systems.

OECD sources told swissinfo that delegates are meeting in Paris this week to discuss progress by member states, ahead of the publication of an updated list in July.

Eckmann hinted that the forum was unfairly targeting Switzerland, while well-known tax havens around the world may escape mention.

“We have big difficulties understanding how after five years of discussions about what should be considered a harmful tax practice, the forum comes up with a report that considers Switzerland the only country in the whole OECD with harmful aspects in its tax legislation,” Eckmann said.

The potential OECD move has triggered consternation in Bern, where the Swiss finance minister, Kaspar Villiger, reportedly described it as an “affront”.

Lobbying efforts

A delegation of Swiss tax officials is currently negotiating with the forum in an attempt to avert a listing.

The government is also considering whether to use its OECD veto to block the sanction, although Eckmann said Bern was confident of avoiding such a move.

“We will put forward our best arguments to the OECD to show them that this report is not correct,” Eckmann said.

“We won’t make any concessions in this field because we are convinced that our system is OK,” he added.

Although Eckmann declined to criticise specific countries, he said the potential blacklisting was motivated by governments eager to break Switzerland’s attractiveness to global firms.

“Competition among countries to [host] these companies is fierce, and it’s only natural that every country looks to have favourable frame-work conditions,” he said.

“This report from the OECD has to be seen in this light.”

PO box firms

However, critics question Switzerland’s tolerance of holding companies that do little immediate business within the country.

The “NZZ am Sonntag” newspaper recently said some 3,500 companies were registered as domiciled bodies in the canton of Zug alone – all of them no more than post offices.

Despite criticism of such “shell-companies”, Eckmann said the OECD row was about winning the attention of big firms seeking stable countries in which to base their global operations.

For many companies, Switzerland remains an ideal location for top-tier managers, thanks to its political stability and high standard of living – as well as the financial incentives.

“Switzerland is a country with no natural resources and few large scale industries. Therefore it’s natural that the services sector and these holding companies are very important,” Eckmann said.

“And this is why our government offers favourable frame-work conditions.”

swissinfo, Jacob Greber in Zurich

Key facts

An OECD body is considering whether to name Switzerland as a country that has “harmful tax practices”.
The Swiss Finance Ministry says the move is “unacceptable”.
A listing could damage Switzerland’s reputation.
In 2000, the OECD said Switzerland’s treatment of “holding companies” was potentially harmful. The list is now being up-dated.
Wal-Mart, Philip Morris, Gillette and Procter & Gamble are international firms with headquarters in Switzerland.