The End Of Swiss Banking Secrecy?

05.07.13

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

Not too long ago Swiss banking secrecy seemed set in stone, but its days now appear to be numbered. The EU has started new negotiations with Switzerland; the Swiss government proposed a bill to permit banks to…

Not too long ago Swiss banking secrecy seemed set in stone, but its days now appear to be numbered. The EU has started new negotiations with Switzerland; the Swiss government proposed a bill to permit banks to provide data to the US authorities and even Swiss bankers now suggest the country should adopt automatic exchange of information.

The crackdown on tax evasion and tax havens remains high on the global political agenda. Switzerland has come under mounting pressure, and although there have been developments over recent years; the major ones are probably still to come.

Europe

The EU is starting negotiations with Switzerland, Liechtenstein, Monaco, Andorra and San Marino on a new tax accord. This will be an extension of the Savings Tax Directive, and it is understood they will be expected to conform to the rules of automatic information exchange.  

EU Commissioner for Taxation, Algirdas Šemeta has had his first meeting Eveline Widmer-Schlumpf, the Swiss Finance Minister. Widmer-Schlumpf reportedly implied that Switzerland would consider automatic exchange of information if it was a global standard.

Austria and Luxembourg’s decision to support plans for automatic exchange of information at EU level has dramatically changed the situation for Switzerland. It is now under more pressure to fall in line with the EU.

Professor Stéphane Garelli of the IMD business school in Lausanne told the Financial Times that this would be the “final nail in the coffin” for banking secrecy. He added: “Switzerland is now moving towards an orderly retreat”.

Swiss bankers themselves think that it is time to change direction and remove the uncertainties currently facing the Swiss banking industry.

In May, the President of the Swiss Private Bankers Association, Nicolas Pictet, urged the Swiss Federal Council to opt for automatic exchange of information, instead of bilateral agreements with individual EU countries. With the EU beginning talks on automatic exchange of information it makes sense to have just one solution to ensure tax conformity.

More recently, a government panel released a report which suggested that Switzerland should be ready to share data on foreign depositors with the EU even before a global standard is established.  

In a statement, the Swiss Bankers Association, said:

The most recent international developments concerning automatic information exchange (AIE) indicate the pressure on Switzerland to adopt a (global) AIE regime is being kept up and even increasing.

Swiss banks are keen to pro-actively negotiate with the EU on expanding the taxation of savings income and a type of information exchange acceptable to the EU.”

Long-running tax evasion dispute with US

The US government has waged a long campaign against Swiss banks, accusing them of helping wealthy Americans hide income and assets from the US tax authority, the Internal Revenue Service (IRS).

In 2009 UBS bank acknowledged that it had helped thousands of Americans evade tax. It paid a $780 million fine to the US Department of Justice and handed over data on around 4,450 clients.

Other Swiss banks still need to resolve the issue and banks like Credit Suisse and Julius Baer are coming under increased pressure from the US to do so.

The Swiss government was hoping to push through a bill to allow banks to disclose information to the US government. Although client name and account details would be withheld, other data key to tracking tax evaders with undeclared Swiss accounts would have been permitted to be exchanged for a one-year period.

The Swiss parliamentary upper house of representatives approved the proposal, but it was then rejected by the lower house. The federal government now urgently need to find another solution.

The Swiss Bankers Association said it regretted the outcome, and warned that the consequences for the country’s financial centre and wider economy are “incalculable”.

If banks do not enter into settlement with the Department of Justice, they risk facing civil or criminal proceedings if the US has evidence of their complicity in tax evasion.

In January this year, Switzerland’s oldest private bank Wegelin & Co, pleaded guilty to charges relating to helping Americans evade $1.2bn of taxes. It was ordered to pay $58 million to the US authorities in fines, restitution and forfeiture of fees.

The bank, which was founded in 1741, announced that it would have to close as a result.

The Swiss government has now endorsed its FATCA deal with the US. This is the US’ Foreign Account Tax Compliance Act, whereby foreign financial institutions are obliged to share information on their American clients with the IRS.  Any bank wishing to do business with the US market has a strong reason to comply.

Switzerland has adopted a simplified version, as agreed with the US in February.  Although information will not be automatically disclosed, the Swiss government explains that the agreement ensures that accounts held by US persons are disclosed to the US tax authorities, either with the consent of the account holder or through the normal administrative assistance channels as per the double taxation agreement.

We are entering a new era. As more tax authorities exchange information, there is no hiding place. How does all this impact your international tax planning? Talk to specialist firm Blevins Franks for advice on tried and tested legitimate tax planning solutions.

21 June 2013

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.

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