Get out your reading spectacles, folks. This is going to be a long one. Ahem...
Switzerland, where strict banking secrecy has been enshrined in law for 75 years, announced Friday that for the first time it would exchange tax information about foreign individuals with Swiss bank and other financial accounts in cases of alleged tax evasion.
Implementing this new policy will take time and require the renegotiation of Swiss tax treaties with 70 other nations.
Until now, Swiss law has made tax fraud, (the filing of false returns or fraudulent tax documentation), a crime, but tax evasion, the intentional, illegal non-payment of taxes, was not a Swiss crime.
This has infuriated foreign tax collectors, especially the U.S. Internal Revenue Service, since the Swiss-U.S. tax treaty did not require Swiss co-operation in cases of alleged U.S. income tax evasion.
Levin’s Lost Billions
Some leftist politicians, such as U.S. Sen. Carl Levin (D-Mich), long time and always shrill opponent of tax havens, are convinced that any U.S. person who has a Swiss (or any offshore) bank account is ipso facto engaged in tax evasion.
The Senator constantly repeats his unproven charge that "US$100 billion" is lost annually to the U.S. Internal Revenue Service due to offshore tax havens. Recently, armed with the UBS tax scandal, Switzerland has been Levin's prime punching bag.
Blacklists or Blackmail?
The official Swiss decision to co-operate on cases of international tax evasion came amid pressure and outright threats by major high tax countries to crack down on so-called "tax havens." (Switzerland is not a "tax haven" since it imposes individual and corporate income taxes, but tax haven opponents irrationally attack as "tax havens" any jurisdiction that guarantees financial privacy by law).
The Swiss decision came as other so-called tax havens, including Liechtenstein, Austria, Luxembourg and Andorra, as well as Singapore and Hong Kong, announced, in what appeared to be a coordinated effort, similar tax information policy changes to fend off being added to the global blacklist.
An April 2nd "G-20" London meeting of major nations, dominated by high tax welfare states, was expected to issue such a blacklist, with Germany and France pushing for condemnation of the Swiss. They probably will still do so, in my opinion.
In an admitted effort to avoid the threatened international "blacklist" and possible sanctions, the Swiss Federal Council, the nation's governing cabinet, decided the government will apply model tax standards set by the Organization for Economic Cooperation and Development (OECD). The new Swiss tax information exchange procedure will be based on Article 26 of the "OECD Model Tax Convention" governing the exchange of tax information among nations.
The Usual Suspects
Reaction from the European Union, France and Germany was cautiously favorable, but the reaction from the Left and their fellow travelers was predictably sour.
The United Kingdom's hapless prime minister, Gordon Brown, wrong as usual, (left) hailed the announcement as "the beginning of the end of tax havens," according to a press release from Downing Street.
"The days of European tax havens are numbered,"
A U.S. publication, Privacy World, offered the uninformed opinion that: "Bank Secrecy Bites the Dust in Europe"
Senator Levin grumbled that the Swiss changes were welcome but "long overdue" but, he continued, "the promised new limits on offshore secrecy will not only take years to implement, but even after taking effect, will not eliminate all offshore tax abuses. That's why we will continue to press Congress" for anti-tax haven legislation.
No doubt Levin realizes that the timely Swiss move should decrease chances of his radical anti-tax haven legislation, which was already in trouble.
Playing Defense
"This is a softening of absolute bank secrecy," Swiss Finance Minister Hans-Rudolf Merz (left) admitted at a press conference in Bern. "If Switzerland were to wind up on a blacklist it wouldn’t only hurt the banking sector," but also the whole economy, he added.
Switzerland is estimated to hold at least US$3 trillion, about one third of all global offshore assets. Swiss banks actively manage over US$3.3 trillion, over six times the nation’s gross domestic product which in 2008 was about 530 billion Swiss francs (US$460 billion). The service sector contributes 70% of Switzerland's economy, and much of that means financial services; 150,000 Swiss jobs are in banking.
The Swiss Bankers Association endorsed the official action but said it expects "an end to all improper international criticism of Switzerland and its legal system and also an end to threats to put Switzerland on a so-called ‘blacklist."
Knowing Switzerland's rabid critics as I do, I think that may be bankers' wishful thinking.
National Vote?
Reaction in Switzerland ranged from mild to angry.
The center-right Radical Party and the Christian Democrats gave guarded approval. The leftist Social Democrats called it a step in the right direction, and the left-wing Greens said the government concessions did not go far enough.
For its part, the rightist Swiss People's Party accused the government of "betraying citizens and bank clients" and giving in to "blackmail". It announced it would defend the 75-year-old banking secrecy and force a nationwide vote.
That would be an interesting national referendum. The vast majority of Swiss support banking secrecy. A national poll this week showed 78% of those surveyed want to preserve the current bank secrecy law and 91% favor protecting their own privacy in financial matters. In the last 20 years the Swiss have endorsed bank secrecy by wide margins in two national referenda.
How New Rules Will Work
Bank-client confidentiality, described in Art. 47 of the Swiss Banking Act of 1934 guarantees a confidential relationship between client and bank.
The Swiss insist that nothing about that will change. The Swiss government made it clear that there will be no so-called "fishing expeditions" allowed and no automatic disclosure of information, which is what critics have demanded. Bank-client confidentiality remains in place for all foreign clients not under suspicion, the Swiss said.
The Swiss announcement said that while they will agree to the exchange of tax and financial information upon proper request, if the following conditions are met:
• the foreign tax authority must submit a written request, indicating sufficient grounds for suspicion of tax evasion or tax fraud
• the taxable person must be identified in the request;
• the facts of the tax evasion must be adequately described;
• a specific bank or branch must be named.
Taxable persons who do not consent to Swiss administrative assistance may appeal against this process. Finance minister Merz ruled out a retroactive application of the amended tax treaties, saying alleged tax dodgers cannot be held accountable for prior violations.
More of the Same
The tax collectors of major welfare states, France, Germany and the United States among them, have zero respect for financial privacy.
They see anyone who dares to do business offshore as tax evaders. They have condemned Swiss bank secrecy as aiding and abetting massive tax evasion. These anti-Swiss, anti-tax haven, anti-financial privacy campaigns have continued for more than a decade, spearheaded by the OECD, a paid, pro-tax mouthpiece for the major nations, whose standards, ironically, the Swiss now invoke.
I doubt even this substantial privacy policy change by Switzerland and other leading tax havens will stop the leftist campaign to destroy utterly all tax havens.
There is no appeasing these socialist ideologues who have been waging this "destroy tax havens" campaign for years. Their cry for complete "transparency" has obscured their real aim -- to end free tax competition among nations -- to keep U.S. and other nations' taxpayers imprisoned in domestic high tax systems from which there is no escape.
Smoke Screen
The global recession, to which these tax hungry governments contributed in major part, is now their convenient smoke screen to attack honest tax havens and the increasingly less free citizens who dare to employ their many excellent offshore professional services.
If you are an honest taxpayer who has, or wishes to have an offshore bank account, (as is your legal right, for the moment), the announced Swiss policy change should not bother you -- especially if you believe that the IRS is a competent agency of the U.S. government, and that you will never have any problems understanding and complying with the more than ten thousand pages of the U.S. Internal Revenue Code.
There still are many good reason to "go offshore" financially -- absolute financial privacy is still available -- as long as you pay the taxes you owe, a laudable patriotic procedure we have consistently advocated.
** For an understanding of the many advantages srill offered by Switzerland and its revised bank secrecy law, you can find it in my book, Swiss Money Secrets.
Dear Dr Bauman:
It is interesting to contrast what the Swiss said in March 2009 with what they actually did in August 2009.
Could this be considered as yet another example of a Janus-faced nation?
Kind regards,
tony
Posted by: tony | September 05, 2009 at 07:33 PM