Swiss Banks Abetting Tax Evasion

In the wake of the financial crisis, the Swiss financial centre has come under heavy pressure from two sides and has had to make significant concessions. On one hand, the behaviour of UBS in the US was harmful. In February 2009 Switzerland had to disclose the data for some 300 UBS clients to the US. At end-July Switzerland and the US agreed to settle the US civil proceedings against UBS out of court.

On the other hand, Switzerland was also put on the OECD and G-20 grey list in April 2009. The Federal Council had in fact resolved on 13 March 2009 that Switzerland adopt the OECD standard for administrative aid in tax matters pursuant to article 26 of the OECD model agreement (FDF 2009c). It announced that it would rapidly initiate negotiations for the revision of DTAs with States that wished this.

In the meantime Switzerland has concluded and signed 12 DTAsaentailing extended administrative aid (FDF 2009d). Three more have been negotiated but have not yet been signed. These agreements must now be ratified by parliament before they can come into force. It is striking that, with the exception of Mexico (itself a member of OECD) and Qatar, there are no developing countries on this list.

Switzerland has contracted DTAs with only 42 developing countries.b Some of these do not provide for any administrative aid in the event of tax fraud. Another group of the agreements assures administrative aid only in the event of tax fraud. There are no treaties at all for over 100 developing countries. In these cases there are no contractual commitments with respect to tax evasion and tax fraud (Alliance Sud 2009). Switzerland had already negotiated agreements with Bangladesh, Chile and Ghana before it switched to the OECD standard for exchange of information. The federal councillors ratified these old-model agreements. Those with France and Turkey, also originally negotiated on the old model without exchange of information even for tax evasion, were, in contrast, referred back for reworking. An economic commission motion has been submitted instructing the Federal Council to draw up a concept for the equal treatment of OECD and developing countries.

At a media conference in the run-up to a conference of OECD ministers of finance in Berlin in June 2009 Alliance Sud (2009a), together with partner organisations from Austria and Luxembourg, presented proposals for a new tax foreign policy that would benefit not only industrialised States but also developing countries. The three countries should contribute vigorously to drying out the tax havens. The OECD standard should also apply for developing countries. And finally, taxation of interest should be expanded, analogous to the agreement with the EU, to cover the developing countries.

The latter demand was not new; the aid and development policy organisations had already called for it in vain in previous years. The Federal Council had rejected such motions out of hand several times. So it was all the more surprising that Federal Councillor Micheline Calmy-Rey took up the aid organisations’ idea at the UN conference on financing development at Doha at the end of 2008 and declared Switzerland’s readiness, along with other interested countries, to tax the assets from developing countries deposited with Swiss banks, analogous to the interest taxation agreement with the EU, and to direct the income back to the developing countries. The idea was left on the shelf and was not followed up.

In contrast, various bank representatives launched the idea of a capital gains tax on foreign assets (Swiss Banking 2009). Switzerland should levy a tax for interested countries on income from foreign assets held in Swiss banks. This would equate to a further expansion of EU interest taxation as dividends and fund income would also be taxed. This is aimed primarily at OECD member countries, not at developing countries. To date neither the EU nor OECD has shown any readiness to take up the proposals. There were also initial defensive reactions from the capitals of individual European countries and in international press commentaries. Apparently the idea seems to be rated as an all too transparent manoeuvre by the Swiss banks in an attempt to save what can still be saved. Foreign States would profit from increased tax income from Switzerland but would not have any information on the names of the holders of the assets. Such a capital gains tax contradicts the tendency to improved exchange of information. The EU wants data, not money. The banks’ newly built-up defence for banking secrecy does not appear to be appropriate for a prolonged defensive battle.