Roughly 12% of Switzerland’s Gross Domestic Product (GDP)comes from the provision of financial services – in particular ‘secret’ banking. If you don’t want anyone to know you have assets, where they are, or how you got them; chances are someone will mention the benefits of a Swiss bank account.
Swiss bankers know how to keep a secret; and for a very, very long time.
Of course the global agenda is now firmly fixed on removing ‘secrecy’ from the conduct of cross-border trade in financial and services with both the former head of the OECD Centre for Tax Policy Centre and G-20 declaring in 2011 that the “era of bank secrecy is over”.
As you might expect that’s not exactly true!
Last week the Swiss Council of States approved bilateral tax agreements with the United Kingdom, Germany, Austria and Luxembourg designed to resolve the issue of the hundreds of undeclared and untaxed assets of their residents held in Swiss bank accounts.
The Swiss banking sector has lauded the solution reflected in the agreements maintaining that they will serve “to regulate the past, provide legal security for the future of Swiss institutions and their employees while ensuring better market access in treaty partner states”.
While the rest of the world has been systematically concluding dozens of tax information exchange agreements to:
- provide unprecedented access to tax-payer information (including bank information)
- ensure that ‘secrecy’ is no longer a means of competitive advantage for international financial centres; and
- reinforce the international disciplines on anti-money-laundering and terrorist financing
the Swiss have been cutting deals to remain as they are – secret.
The agreements do not provide a means of exchanging tax payer information but instead confirm that Swiss banks will levy a ‘withholding’ tax on the assets of their foreign clients which will be repatriated to the treasuries of their treaty partners.
Naturally Swiss law-makers regard this to be a ‘pragmatic ‘solution to their longstanding disputes with their European partners because they do not have to relinquish’ traditional’ banking secrecy.
They are right of course because what they have brokered are agreements which not only legalize existing undeclared and untaxed assets held by wealthy Germans, Britons, Luxembourgers and Austrians in Swiss banks but also future investments.
The treaties are now headed to the Swiss National Council for final approval.
2 Quick Questions
- Are the revenue authorities in the UK, Germany, Luxembourg and Austria no longer interested in who has been stashing undeclared, untaxed assets in the Alps and the source of this wealth?
- If the UK treasury has asserted that ‘exchange of tax information’ is to be preferred over the simple levying and repatriation of withholding taxes on illicit assets held UK residents abroad why does the UK agreement with Switzerland propose the opposite?
A Possible Answer
Tax authorities in cash-strapped Europe don’t much care about who owns these assets, their source or even the details of their arrival in Switzerland.
They just want their ‘fair’ share of the money.
Besides, with the staggering number of ‘secret’ Swiss-held assets and the country’s continued popularity supported as it is by the same countries whose governments have been deprived of an opportunity to tax the illicit assets; it seems clear that Switzerland has become a ‘secrecy’ jurisdiction far too big to be allowed to fail.