The Swiss Finance Ministry announced on Friday (June 19) that it had agreed to a new tax treaty with the United States, a step that the Swiss sincerely hope will ease major nation pressure on their banking industry and help in maintaining the country's reputation as the world's leading offshore financial center.
My own opinion is that the Swiss, under real economic threats, did what they had to do in order to protect their interests -- in the short run. In the long run, these leftist, anti-freedom pressures will continue. Hopefully, at some point the Swiss will draw a line that dare not be crossed.
After all, a tax hungry U.S. administration that will double cross a faithful ally such as the Swiss, that shamelessly participates in a global smear campaign and threatens unprecedented economic sanctions, all to force a change in Swiss privacy laws and get more taxes, cannot be trusted.
OECD Article 26
The details of the new tax agreement will be made public when signed by both countries. It is expected to follow the outlines of Article 26 of the model tax information exchange treaty of the Organization for Co-operation and Development (OECD), the leftist group that has been the chief promoters of anti-tax haven blacklists on behalf of their G-20 government paymasters.
But the procedural path to tax treaty approval by the Swiss may be rocky.
Switzerland’s Federal Council and Parliament must approve the agreement. It will also need the backing of the Swiss cantons and it could be petitioned to a national referendum. The conservative Swiss Peoples Party, the leading party in recent parliamentary elections, may oppose the treaty.
Tax Evasion Added
If the agreement is approved, Switzerland will cooperate with the U.S. Internal Revenue Service in investigating suspected cases of tax evasion by Americans with Swiss accounts. Under an earlier existing agreement with the U.S., Switzerland only cooperated in cases of "tax fraud," since foreign tax evasion is not a crime there.
Although Swiss banking secrecy is legendary, (those "numbered accounts"), that secrecy never has been the most important reason for Switzerland's standing as the leading offshore financial center.
Of far greater significance has been the country’s political, financial and economic stability and strength. Many of the world’s leading companies and hundreds of thousands of non-Swiss persons chose to bank with the Swiss because they trust them and know their reputation.
Blackmail Threats
This latest move comes after the Swiss government pledged in March to relax their statutory banking secrecy and re-negotiate double taxation agreements they have with 70 countries.
And they came only after what politely can be called "international blackmail."
Under pressure, threats and an anti-Swiss media propaganda barrage orchestrated by the OECD and the high tax G-20 countries, the Swiss yielded in order to avoid blacklisting and unspecified sanctions.
Pot and Kettle
Under the new agreement Swiss officials made clear that individual tax details would only be exchanged with the U.S. "in individual cases where a specific and justified request has been made". The government said it would only respond to "concrete and justified" requests for personal banking data. In other words, no IRS "fishing expeditions" will be allowed.
But that is the Swiss view.
In an ironic case of the pot calling the kettle black, the notorious U.S. income tax evader, U.S. Treasury secretary, Timothy F. Geithner, crowed: "This treaty will increase our ability to enforce our tax law and will help bring an end to an era of offshore accounts and investments being used for tax evasion."
Illegal Fishing
Unfortunately for the Swiss, the Obama administration is presently pressing just such a massive fishing expedition, demanding the giant Swiss bank, UBS, hand over the names of 52,000 American clients the IRS suspects (without offering any individual proof) of tax evasion.
A federal judge in Miami has scheduled hearings from July 13-15 on the IRS effort to get the 52,000 account holder names. The Swiss government has responded that that UBS turning over the names would violate Swiss law. It also pointed out that the existing U.S.-Swiss tax treaty provides a means to obtain the names of any individuals about which evidence of tax fraud can be shown.
Double Cross
In a good faith effort to end the dispute, UBS already paid $780 million in fines and restitution to settle accusations that it helped American customers evade taxes. The day after the payment, the Obama Justice Department filed the suit seeking the names.
My Swiss sources tell me that parliamentary approval of the new tax agreement could be denied if no political solution is found to the UBS court case. It is clear that Swiss law and the current tax treaty are in direct conflict with what the IRS law suit demands.
It’s obvious that President Obama, ravenous for taxes to finance his socialist agenda, is allowing the IRS to ignore the law and the current U.S. – Swiss tax treaty.
The IRS doesn’t want to go through messy "due process," actually having to prove individual cases. They would rather grab 52,000 names and scare those who might be tax evaders to take advantage of a tax amnesty the IRS has offered for those who failed to report their UBS and other offshore accounts.
Switzerland’s Future
The larger question is what all this means to the future of Swiss banking -- and how it will affect the nation’s well earned reputation for offering the very best financial services, including privacy guaranteed by law.
My answer is that none of this should disparage, nor does it change, the attractive attributes that the professional work of Swiss banking has established over centuries. The change is that the government will cooperate in cases of alleged tax evasion by a non-Swiss with a Swiss account, if a prima face case can be shown by the IRS.
In all other respects, under the law a Swiss court still will have to authorize any release of an account holder’s information to others – an irate spouse, a business claim, a law suit or a dispute over an estate.
Don’t They Wish
The Chicken Little approach (promoted by many anti-Swiss competitors/detractors) is to claim that "the sky is falling" -- that this is the end to strict banking secrecy that has been enshrined in law – ergo, the end of Switzerland as that hated major offshore financial haven.
The Confederation of Switzerland and it people are survivors, and rich ones at that. This is a reputable nation that manages over US$4 trillion in cash and assets for people all over the world, and has done so successfully for centuries.
Napoleon and Obama
The U.S. – OECD assault on Switzerland’s sovereignty, in principle, may be the worst foreign violation since 1798, when the French overran the country, leading to Napoleon’s forced creation of what became modern Switzerland.
Despite World Wars I and II, for 250 years, as European empires rose and fell, Switzerland’s official neutrality and determination to defend its sovereignty have made it an unusual island of stability.
Economic Terrorism
Napoleon did the Swiss the favor of unifying the nation. Obama and the tax marauders at the OECD may have done the same for future determined Swiss self-defense.
I happen to believe that Switzerland has the strength to withstand future unreasonable and radical demands to compromise when they are in the right. It remains the world's leading offshore center.
But then, who foresaw the day when an American administration would say "to Hell" with international law and allow the IRS to engage in economic terrorism against an ally?
Need good reasons to join The Sovereign Society? How about 58 of them…
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