From SwissInfo

Swiss move away from “tax haven” status

Olivier Pauchard
swissinfo.ch
Jun 10, 2010 - 21:34


Switzerland is well on the way to getting itself removed from a “grey list” of tax havens, after parliament approved a series of tax agreements.

The House of Representatives on Thursday followed the Senate in overwhelmingly accepting a package of ten double taxation agreements drawn up in accordance with the demands of the Organisation for Economic Co-operation and Development (OECD).

There is nothing new about double taxation agreements in themselves. Switzerland has concluded dozens of them over the years. Their main purpose is to ensure that businesses based in two different countries and individuals resident abroad do not get taxed twice.

But the agreements placed before parliament contain an important new element: they were drawn up to take into account Article 26 of the OECD’s Model Tax Convention, under which countries agree to share relevant data in cases of suspected tax cheating.

This means that Switzerland will no longer restrict its administrative assistance to cases of presumed tax fraud (which involves the falsification of documents). It will also provide information where tax evasion is suspected – in other words, where money not declared to national tax authorities has been deposited in a Swiss bank.

Until now, Switzerland had been the only country which made a distinction between fraud and evasion.


Getting off the “grey list”

Although the new obligation deals yet another blow to Swiss banking secrecy, the government decided to adopt it in March 2009 after coming under intense international pressure.

A number of countries, led by France and Germany, had accused Switzerland of encouraging tax evasion by offering undeclared money a home in Swiss safes.

The issue came to the fore as the world financial crisis meant that states found themselves facing liquidity shortages. Tensions came to a head in 2009 when, under pressure from the G20 group of industrialised states, the OCDE put Switzerland on its “grey list” of tax havens.

The only way for Switzerland to get off the grey list was for it to sign 12 double taxation agreements which included the new article. This it achieved in September 2009.

Exchange of information will take place once the new agreements come into force.


A clear majority

Switzerland has so far negotiated agreements with more than 20 states. Parliament has now approved an initial packet of ten. The Senate approved the deals almost unanimously, and in the House of Representatives opposition was confined to the rightwing Swiss People’s Party.

The People’s Party fears that agreeing to provide administrative assistance could be the first step on a slippery slope.

“As a sovereign state, we shouldn’t allow others to dictate everything to us, or else we’ll find ourselves facing more demands which will end up weakening Switzerland as an economic and financial centre,” said People’s Party member of parliament Hansjürg Walter during Thursday’s debate.

His party thinks the automatic exchange of information could be next on the list, which would sound the death knell for Swiss banking secrecy.

The other parties were not convinced by this argument, since requests for administrative assistance would have to concern a specific bank and be based on well-founded suspicions.

“Double taxation agreements rule out those famous ‘fishing expeditions’ [where tax authorities trawl for data on the off-chance],” said Christophe Darbellay, president of the centre-right Christian Democrats.

The parties of the centre-right are keen for Switzerland to get off the grey list, while the parties further to the left, who also voted in favour, believe the new agreements are moving in the right direction, although they would like to see even stricter rules.

It remains to be seen whether the People’s Party will accept parliament’s clear decision. Voters could still be given the final say, since any legislation passed by parliament can be put to an optional referendum, if its opponents collect 50,000 signatures within 100 days.

Project Wickenby, a multi-agency investigation led by the Australian Tax Office, has been running for four years, investigating cases of tax fraud and tax evasion in which Swiss institutions have a significant role. It started when investigators seized the laptop computer of Swiss resident Philip Egglishaw in a Melbourne hotel room.

Investigations like this are extraordinarily protracted and score few early scalps, as the money trail often wends through half a dozen pocket jurisdictions and is fought by those accused every step of the way. Swiss bank secrecy and Swiss legal distinction between evasion and fraud have created very difficult problems.

For a long time, corporate Australia (perhaps speaking partly from self-interest) was disparaging the mediocre results that Wickenby was achieving and calling for it to be wound up.

Recently the hit rate of Wickenby has improved and the government is supporting the effort:

In last month's Budget, the Federal Government gave the tax office $445 million over the next four years to chase tax evaders, which it hopes will deliver $3.8 billion in extra revenue. The bulk of this money will come from a crackdown on people avoiding the GST and small business trying to hide cash income.

[Tax Office second commissioner Bruce] Quigley said the tax office wanted to "prevent problems rather than waiting for them to emerge".

He said $1.5 billion had been clawed back from international tax havens.

About 1200 audits under the controversial Project Wickenby investigation with the federal police and other agencies had raised $730 million in tax and led to 57 charges and eight convictions.

Mr Quigley said this had been a serious deterrent and the flow of funds from Australia to targeted tax havens in Vanuatu, Switzerland and Liechtenstein had plunged by 30 per cent compared with only a 5 per cent drop in money sent to other high-risk secrecy havens.

He said the average net tax paid by those "touched by Wickenby" had risen by 276 per cent.

The Swiss reforms help, but even without them, there is plenty that other jurisdictions can do to stamp out tax evasion and fraud.