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OECD defuses tax row with Switzerland

Switzerland strongly denies it is a tax haven Keystone

Switzerland has reached a compromise deal with the Organisation for Economic Cooperation and Development (OECD) over an ongoing tax row.

This content was published on January 28, 2004 - 11:23

At a two-day meeting in Paris, Swiss negotiators agreed to give foreign tax authorities more access to information about Swiss-based holding companies.

The issue was one of three points of disagreement between Bern and the OECD, which had threatened to blacklist Switzerland as a country that supports "potentially harmful tax practices".

The Swiss government had staunchly opposed the threat, arguing that its purpose was to weaken Switzerland's ability to attract foreign companies.

Wilhelm Jaggi, Switzerland's ambassador to the OECD, welcomed the fact that a deal had been struck with the Paris-based organisation.

"It's certainly a good result that we could get rid of this irritant between Switzerland and the majority of other OECD members," Jaggi told swissinfo.

"It's a good and balanced solution for all sides," he added.

Common ground

OECD spokesman Nicholas Bray told swissinfo that Switzerland had reached "common ground" with its critics.

"This is not a victory for the Swiss. This is a work in progress. It is not Switzerland bashing the OECD, or the OECD bashing Switzerland," commented Bray.

Jaggi said Switzerland would now negotiate with OECD countries to improve the way information was shared between tax authorities.

He stressed the deal had nothing to do with banks or banking secrecy, which the Swiss authorities have always maintained is non-negotiable.

"We agreed to negotiate in the framework of our bilateral tax treaties [for new] provisions for an effective administrative exchange of information for holding companies," said Jaggi.

Another sticking point resolved on Wednesday involves the issuing of an "administrative note" on how companies define taxable profit.

A third issue - on how commercial expenses are deducted from tax statements in Switzerland - remains unresolved.

International reputation

The dispute between Switzerland and the OECD posed a serious threat to the country’s international reputation as a global financial centre.

Swiss business groups have accused countries with rival financial centres - including Britain and Germany - of driving the OECD campaign.

Ever since 1997, when the Swiss government overhauled its corporate taxation laws, a wave of firms have chosen to locate their European or global headquarters in Switzerland.

They include many of the world’s biggest brands and corporations, such as Gillette Starbucks, and Procter & Gamble.

Most companies said one of the main reasons for basing themselves in Switzerland was the country's attractive taxation system.

Shell companies

The potential OECD blacklisting of Switzerland was based on the country's tolerance of holding companies that do little immediate business within the country.

Some cantons, such as Zug, have become home to thousands of so-called shell companies.

Switzerland’s battle with the OECD started in 1998, when the organisation created a “forum on harmful tax practices” in an effort to stamp out tax evasion.

In 2000 Switzerland was listed among dozens of countries said to have potentially harmful tax practices.

Since then, governments around the world have been modifying their taxation systems.

Ridicule

James Nason, a spokesman for the Swiss Bankers Association, told swissinfo prior to Wednesday's compromise deal that the OECD would have “covered itself in ridicule” if it had singled out Switzerland.

“The very criteria that the OECD itself uses to identify tax havens cannot be applied to Switzerland,” said Nason.

“For example, Switzerland is well regulated, shell banks are forbidden, and tax rates are close to OECD norms.

“In other words, there are none of the tell-tale signs of a tax haven.”

swissinfo, Jacob Greber in Zurich

Key facts

Switzerland’s battle with the OECD over taxation practices started in 1998, when the organisation created a “forum on harmful tax practices”.
At a meeting in Paris, Swiss negotiators agreed to give foreign tax authorities more access to information about Swiss-based holding companies.
Switzerland will now negotiate with OECD countries to improve the way information is shared between tax authorities.

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