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Swatch Group says it's in the clear

Swatch claims it never tried to evade taxes and customs duties

(Keystone Archive)

Swiss watchmaker Swatch has announced that a complaint filed by two former employees against the company in the United States has been dismissed.

Swatch, the world’s largest watchmaking concern, had denied allegations that it had evaded taxes and import duties.

The group said on Saturday that its American lawyers had received a copy of a letter addressed to the two plaintiffs, in which the US Labor Department dismissed the claims.

Swatch spokeswoman Béatrice Howald refused to release a copy of the letter, citing confidentiality concerns.

She said, though, that the Labor Department decided not to go ahead with the case since the accusations dealt with alleged actions outside the United States. The plaintiffs have until early September to appeal against the decision.

The two former employees accused Swatch of evading $180 million in tax and duties by manipulating prices within the group. They alleged that the company had used an Asian subsidiary to avoid payments in several countries, including the US.

On Friday Swatch denied that its pricing decisions were for tax purposes, but said it had launched an internal investigation as soon as it became aware of the complaint, which was filed on June 25.

Dispute

The company added that the complaint was submitted alleging discriminatory employment practices. “The actual case… concerns a pure employment dispute between the company and former employees,” it said.

The two men accused Swatch of using so-called transfer pricing to funnel profits from countries with high taxes to those with lower ones.

According to Friday's "Wall Street Journal", the complaint said that Swatch Group’s senior management tried to cover up the alleged tax evasion activities in April, after the two employees complained to their superiors about the practice.

The two who filed the complaint – Joseph Ede and Matthieu Phanthala – worked as regional controllers for the group and were based in Asia. They left the company earlier this year.

In the complaint, they said they had been subjected to a “pattern of harassment” by Swatch because of their allegations.

Investigation

The two former employees said they chose to file the complaint in the US because the company’s stock can be bought and sold there, although it is not listed on a US stock exchange.

The WSJ reported that Swatch Group Asia was allegedly used to move profits out of the US “resulting in cumulatively [much] more than $1 million in US tax evasion”.

The paper also quoted Joseph Ede as saying that Swatch had evaded taxes and duties amounting to more than $180 million in Asia and Australia in the past six years.

Swatch said none of its companies used transfer pricing “just for tax purposes, but with a view to harmonise the international price structure for the consumer [and] to avoid the very harmful parallel market”.

The mere hint of scandal had been enough to scare off investors on Friday.

The sell-off – shares dropped by 11 per cent during early trading – came in response to the article in the European edition of the WSJ, as well as another in the “Financial Times”.

But the stock fought back later in the day, with the bearer share losing just under four per cent in value at SFr141.50 ($114.23) by the end of trading.

swissinfo with agencies

Key facts

The Swatch Group includes, among others, the Breguet, Blancpain, Omega, Longines and Swatch brands.
The group recorded a profit of SFr 492 million ($395.9 million) in 2003, with sales of SFr3.845 billion.
The total value of Swiss watches and movements exported in 2003 was SFr10.17 billion.

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