Swiss tax evasion storm refuses to clear

Sarkozy has tax havens in his sights Reuters

The global pressure on Switzerland to cede further concessions in a tax evasion row is showing no signs of relenting after comments last week at the G20 summit.

This content was published on November 8, 2011 minutes

French President Nicolas Sarkozy called on Switzerland and ten other so-called tax havens to be “excluded from the international community” for refusing to sign up to an automatic exchange of information agreement.

Switzerland is currently playing a game of chess with various other countries in an effort to manoeuvre itself through a global minefield of criticism and clear its reputation as a responsible international financial centre.

The Swiss authorities capped a series of renewed double taxation agreements with recent breakthrough deals with Germany and Britain. The dual deals, yet to be rubber stamped, preserve Swiss banking secrecy by agreeing to hand over withholding taxes in exchange for the continued anonymity of account holders.

Several other countries, including Greece, are interested in striking similar agreements, but opposition to the so-called Rubik solution remains entrenched.

Name and shame

The European Union is committed to a multilateral automatic exchange of information system, whereby countries hand over confidential data on demand to support tax evasion investigations.

The United States has also brushed aside offers of a withholding tax deal, having already secured data from more than 4,000 UBS bank clients. The US is now tightening the net with Credit Suisse informing some account holders that their details may be handed over.

The G20 group of the world’s most influential nations has now joined the attack, promising to publish lists of uncooperative tax jurisdictions – including Switzerland – at future summits.

“We don’t want to have tax havens any more. Our message is clear,” Sarkozy told Friday’s G20 summit in Cannes.

The Cannes summit saw all the remaining G20 member states sign up to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters – a step that has been dubbed “phase 2” along the road of stamping out tax evasion.

Threats made

Switzerland, along with ten other states, has steadfastly ruled out subscribing to an automatic exchange of information – a point hammered home during a country-by-country review by the Global Forum for Transparency and Exchange of Information for Tax Purposes.

“We urge all the jurisdictions to take the necessary action to tackle the deficiencies identified in the course of their reviews, in particular the 11 jurisdictions whose framework does not allow them at this stage to qualify for phase 2,” the G20 summed up at the end of the Cannes summit.

The G20 decision to name and shame uncooperative countries echoed the “grey list” issued by the Organisation for Economic Cooperation and Development (OECD) at the G20 London summit in April 2009. Initially included the list, Switzerland was removed by the end of that year.

Swamp draining straw

“Considerable progress has been made by Switzerland,” Jeffrey Owens, head of the OECD’s  Centre for Tax Policy and Administration, told “There has been a massive change and the difference between 2009 and now can is like night and day.”

Owens also recognised Switzerland’s announcement in February that it would assist tax evasion investigations even if a suspect’s name is unknown.

Unlike the G20 and the EU, the OECD has never insisted that Switzerland automatically exchange information - as laid out by the multinational convention.

“Having led by example by signing the multilateral convention in Cannes, the G20 members hope to encourage others to join,” Owens told “But the decision to join up must be taken by each individual country.”

Such a view is not shared by pressure groups, such as Tax Justice Network that describes the OECD’s international standards as “woefully inadequate”.

“G20 leaders asked the OECD to drain a swamp – and the OECD has been handing out drinking straws,” Tax Justice Network said in a statement as it named Switzerland as being the world’s most secretive tax jurisdiction last month.

Still on agenda

President Sarkozy demonstrated last week that he is also losing patience with Switzerland and other countries that he feels are dragging their feet.

The EU has also raised doubts about the legitimacy of the tax deals between Switzerland, Germany and Britain. At the very least, the EU will use the agreements to raise the standard of its current withholding tax deal with Switzerland, that has failed to generate anything like the revenues as hoped.

For the time being, the EU and the G20 have their hands full trying to contain the European debt crisis and prevent it fuelling another global recession.

However, Switzerland’s role in the international tax system is clearly still on the agenda.

Tax pressure

Banking secrecy was enshrined in Swiss law in 1934.
France and Germany launched an attack on Switzerland in October 2008 for allegedly helping foreign tax evaders hide their assets. 
The country has been under continuous attack over the issue ever since.
The OECD placed Switzerland on a “grey list” of uncooperative tax havens in April 2009. The Swiss were removed in September after renegotiating more than 12 double taxation treaties, but they have refused to automatically transfer information to tax investigators without proof of wrong-doing.
Several countries, including Italy, France, Britain and the US, launched tax amnesties in 2009 in an effort to repatriate assets from tax cheats.
The most damaging tax evasion case involved the activities of UBS bank in the US. In February 2009, UBS was fined $780 million after admitting helping US citizens dodge taxes. It also handed over data of 285 account holders.
In September 2010, the Swiss government agreed to transfer the details of 4,450 UBS clients to the US – in effect violating Swiss banking secrecy to prevent a ruinous court case for UBS.

In June 2011, the global forum on transparency and exchange of information for tax purposes gave Switzerland relatively good marks in its peer review of the country, but indicated there is still some work to be done.

Switzerland agreed to withholding tax deals with Germany in August and Britain in October that preserve banking secrecy. Greece is due to begin negotiations for a similar deal.

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