Swiss Banks And The Tax Evasion Crackdown


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On 6th May, Switzerland joined with other OECD members in committing to apply automatic exchange of information, effectively committing to end banking secrecy for tax purposes. There has also been other news about Swiss banks and tax evasion issues.

6th May 2014 was a historic day for Switzerland. It joined with other Organisation for Economic Cooperation and Development members in committing to apply automatic exchange of information, effectively committing to end banking secrecy for tax purposes.

Later that month, the Swiss Federal Council voted to adopt negotiation mandates by the autumn, which will allow automatic exchange of information with “partner states”. Finance Minister Eveline Widmer-Schlumpf explained that agreeing to such disclosure was a pre-requisite for continued access to foreign financial markets. She told journalists: “We risk being cut off if we are unwilling to cooperate”.

There has been other news about Swiss banks and tax evasion issues.

Taxman benefits from stolen data

Back in 2006/07, an employee of HSBC Geneva, Herve Falciani, stole customer data and then passed it to the French authorities, saying that he wanted to expose tax evasion. The leak showed that Switzerland’s famed banking secrecy was not so reliable after all.

France shared the information with other countries which had taxpayers on the list. This enabled them to investigate the account holders to establish if they had declared the bank accounts and interest income as required by law.

Now, HM Revenue & Customs (HMRC) has reported that it recovered £135 million (€171m) from the 24,000 UK taxpayers on the list.

According to HMRC Chief Executive Lin Homer, it has pursued 3,800 taxpayers for payments. It encouraged voluntary settlements to avoid costly prosecutions, and just one person has been prosecuted so far.

Ms Homer told the House of Commons Public Accounts Committee:

We are very very interested – and determined – to shake some money out of these people, but I don't think it'll all be by prosecutions. So far we have a yield of £135m, but we are not finished.

Spain and France have done even better out of the data. Spain has collected £220 million (€278m) so far and France £188 million (€238m).

More people declaring Swiss bank accounts

Under the terms of the Savings Tax Directive, EU residents with bank accounts in Switzerland currently choose between paying a withholding tax on their interest income (at 35% since July 2011) and authorising their bank to disclose their account details to their home tax authority.

In 2012, Switzerland withheld €506 million in withholding tax. The latest data shows that this fell to €420 for 2013.

Swiss banks made 61,000 declarations under the automatic exchange of information option in 2012. This increased to 98,000 the following year.

More people are realising that it is impossible to hide funds in Switzerland, and that they need to declare the assets and income to avoid being investigated for tax evasion.

Others would have moved money out of Switzerland and into legitimate tax planning arrangements for their country of residence. Switzerland, with the 35% withholding tax, is not a tax efficient home for your money. You would pay less tax in countries like Spain, Portugal and Cyprus, and that is before you employ tax planning arrangements which can provide significant tax advantages.

Switzerland reveals bank deposit movements

As part of its tax accord with the UK, Swiss banks were required to hand over information on deposit movements to the UK authorities, to support UK efforts to track down untaxed income.

Under the agreement, accounts in Switzerland owned by UK residents became subject to a one-off levy of between 21% and 41%. Account holders who failed to authorise disclosure to HMRC also pay a 48% withholding tax on investment income and 27% on gains.

HMRC has been writing to those who authorised disclosure, asking them to complete certificates confirming if they have outstanding liabilities in relation to any offshore accounts, investments, assets or income (not only those in Switzerland), and whether they are making a full disclosure.

The Swiss government has given HMRC a list of the top ten jurisdictions that UK account holders transferred money from Switzerland to. The UK government is expected to use this to pressurise the countries into passing on information on these clients.

Credit Suisse pays high price for aiding tax evasion

In May Credit Suisse pleaded guilty to “an extensive and wide-ranging conspiracy” of aiding American clients evade tax.

The bank paid a penalty of $2.6 billion (€1.9bn) to the US authorities – the largest imposed in a US criminal tax case. It eclipses the $780 million (€576m) paid by UBS in 2009.

The higher amount is reportedly because Credit Suisse refused to hand over client names to the US Department of Justice (DoJ). However it still has to disclose significant information on how it operated its cross-border business, and on the number of US owned accounts, their maximum values and funds transferred in and out of the accounts. The DoJ can use this information and the tax treaty to make requests for actual account records, to enable it to track down the names of the owners.

The times have changed in Switzerland. Is it still a good location for your money?

18 July 2014

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.