Companies in Switzerland with close ties to the United States and Europe are growing ever more concerned about how business could turn if the country is blacklisted.
The looming spectre of being shunned by the world's most powerful economies has already forced Switzerland to start lifting the veil on portions of its banking secrecy laws. But business leaders worry the real threat runs far deeper than outing accused tax cheats.
Not only would billions of francs worth of foreign deposits likely be diverted to accounts elsewhere, but American and international companies that have long viewed Switzerland as an ideal base for European operations may begin to look away.
"Multinational companies in Switzerland are like a whole zoo with many kinds of animals and each would be touched in a different way," Martin Naville, head of the Swiss-American Chamber of Commerce in Zurich, told swissinfo. "There are a lot more risks than opportunities with this."
For the moment, talk of blacklisting remains hypothetical. The Group of 20, or G20, is slated in the coming weeks to discuss placing countries like Switzerland on a list of uncooperative tax havens.
If that happens, foreign companies with subsidiaries here could be subject to onerous audits, additional withholding taxes and – perhaps most damaging of all – public criticism in their home countries for having ties to a state deemed a financial pariah.
"I think people are right to be worried," said Werner Schiesser, a board member at BDO, an international accounting firm with offices in Zurich that does billions of dollars worth of business in the US. "Doing business with a country on the blacklist would raise a lot of eyebrows."
Swiss brand could suffer
Such blacklist talk is not new but the critical difference this time is that Switzerland has come under simultaneous pressure from its two major trading partners – the EU and the US, which estimates it loses out on at least $100 billion (SFr118 billion) a year in tax revenues hidden in so-called offshore havens.
Naville says that Switzerland is no such haven and does not deserve to be on the list, especially since it contributes readily to the global fight against money laundering and terrorist financing.
Yet the pressure from both sides of the Atlantic has been enough so far to squeeze Switzerland, Andorra, Austria and Liechtenstein into softening laws on bank client confidentiality. It's unclear whether relaxing those laws will be enough to keep countries off the list.
Although the G20 has no binding legal authority, placing Switzerland on a blacklist would still carry significant consequences for both companies here as well as those looking to relocate.
"Pragmatically, say you are in charge of evaluating sites and you bring a project to your board in America and say we want to relocate 100 people to Switzerland," Naville said. "Someone might say, isn't it on a black list? Would you do it and risk a newspaper report about investing money in a blacklisted country or just not go?"
Swiss exporters could also find their competitive edge grow dull. Blacklisting could overshadow the country's reputation for high quality construction and well-defined standards.
"With reputation alone, blacklisting would change this to an extent that one could feel," Schiesser said. "For financial institutions, there would be a lower inflow from day one."
Export companies at risk
For a huge company like BDO, which provides bookkeeping services in 110 countries and employs 900 people in Switzerland and 44,000 people worldwide, having Switzerland blacklisted could change their client base and the way they do audits.
But the company is far too large to pull out of Switzerland altogether and the benefits for staying are still clear.
"We won't lose the multi-language skills of the people, the open society, the open business and good transportation," Schiesser said. "But taxes are always an issue."
Smaller exporters with offices in Switzerland and the US could be affected the most, since they have little political clout and fewer resources to deal with increased scrutiny and paperwork.
Black Diamond Equipment is one of those companies, though it has no plans to leave. The climbing- and ski-gear manufacturer based in Salt Lake City, Utah, picked Basel for its European base.
"Business law here is the most similar to the US in terms of reporting systems and how you run a company," said CEO Christian Jäggi. "Switzerland was the perfect solution for us."
Since 1997, sales from the European arm of Black Diamond have risen to generate about one-third of all revenue, which is about $100 million, although Black Diamond Europe has just 25 employees compared with 425 at the US headquarters.
But the balance sheets could change were Switzerland to be blacklisted, since the company might have to set aside a higher percentage of its budget as a safeguard withholding tax for US authorities.
"It would be quite the headache," Jäggi said.
Other issues could arise over patents and royalty payments. If an overseas parent company has a subsidiary based in Switzerland that holds a patent, the parent company might have to pay the subsidiary royalties without being able to deduct the costs.
Either way, options for finding a way out could be dwindling.
"We have to try to make the Swiss authorities act quicker than in the past," Schiesser said.
"We have to be very careful to keep the tax environment still interesting for US firms to have headquarters in Switzerland."
swissinfo, Tim Neville
Senator Carl Levin, a Michigan Democrat, created a bill in February 2007, the Stop Tax Haven Abuse Act, to restrict the use of offshore tax havens and shelters to avoid US taxes.
Levin says "tax havens are engaged in economic warfare against the United States" and reintroduced an 84-page version of the bill earlier this month.
Among other things, if passed, it would give the US Treasury Department authority to impose tougher reporting requirements on US taxpayers with dealings in "offshore secrecy" jurisdictions. Switzerland could be considered one such area.
Switzerland and the United States have a long history of cooperating on trade. In late November 1850, shortly after modern-day Switzerland came into being, the US and Switzerland signed a series of agreements. The Swiss president told parliament that year that the US offers "a treaty of friendship whereby the two freest peoples on earth will treat each other reciprocally on a footing of equality".
Today, the US estimates it loses at least $100 billion a year in tax revenue as 83 of the 100 largest companies have their profits taxed in offshore havens. Foreign private investors hold upwards of SFr2 trillion in Swiss banks. Another trillion francs are held by institutional investors.
A recent report by the US government states that 72 of that country's 100 biggest publically traded firms – such as American Express, General Motors, and IBM – have offshoots in Switzerland. Treaties between the US and Switzerland work to eliminate double taxation on dividends, interest and royalties, which help make the country attractive for European operations.
USA and Switzerland
Thanks to its infrastructure, central location and competitive tax structure, Switzerland has become a major hub for foreign companies in Europe. The Swiss-American Chamber of Commerce estimates that 10% of the total Swiss gross national product – more than SFr40 billion ($33.8 billion) – is generated directly or indirectly by foreign companies. These companies employ 210,000 workers.
The US is the largest foreign direct-investor in Switzerland, with $100 billion in direct investments. There are 645 US companies operating in Switzerland. They provide about 71,000 direct jobs and about 120,000 total jobs.
For Switzerland, the US is the second-largest export market behind Germany. The Swiss sell more goods to Americans than to the French or Italians. Switzerland currently has about $163 billion in direct investments in the US, making the tiny alpine nation the seventh largest foreign investor. There are 560 Swiss companies operating in the US. They provide 310,000 direct jobs and about 500,000 indirect jobs.