France avoids Swiss tax deal – for now

Swiss banks and confidentiality laws have been under constant attack since the financial crisis of 2008-9 Ex-press

Switzerland may have struck deals with Britain and Germany to tax money held by their residents in Swiss bank accounts, but France is digging in its heels.

The French budget minister says France has not excluded a similar accord, but observers say reasons of principle and electoral pressures are preventing them from inking a deal.

So far Paris has resisted the Swiss “Rubik” project. And there is no question of giving up the fight against tax evasion – at least not for the moment.

But the Swiss offer is a tempting one: several billion euros – maybe not for this year but at least for 2013 – at a time when France is struggling to boost revenue and fill empty coffers.

It also comes as the French government last Wednesday unveiled a €11 billion deficit-cutting package targeting companies, the middle class and the rich.

The Rubik project is both simple and sophisticated. Basically the Swiss handle everything,  directly collecting taxes on foreign residents’ money in Swiss bank accounts and then redistributing this to the country concerned without divulging names of the customer or bank, or the IBAN account code. However, this is contrary to the exchange of banking information supported by the Organisation for Economic Co-operation and Development (OECD).

European countries are certainly interested. On August 24 Britain initialled a tax deal inspired by the Rubik system on money held by British residents with Swiss banks, which will be subject to a levy of between 19 and 34 per cent of the account balance.

From 2013 onward, a withholding tax of between 27 and 48 per cent will be applied, depending on the category of capital income. Both rates are slightly lower than the top tax rates in Britain. Tax revenue will be redistributed to the British authorities.

Germany concluded a similar deal on August 10. In future, the Swiss banks will levy a withholding tax of 26 per cent on income earned on assets belonging to German customers. This rate is roughly equivalent to the current rate of tax charged on such income in Germany.

The withholding tax will allow Switzerland to preserve banking secrecy and not reveal customers’ identities. The deal should earn Germany around €1 billion a year. Germany will also receive an estimated €10 billion in “damages” for past tax evasion.

Amnesty or not?

For the moment France is not following its neighbours.

“For the partner country Rubik is about collecting a cheque for compensation for the past and then a final withholding tax to bring the financial situation into line with the law,” said Swiss tax lawyer Philippe Kenel. “It’s a kind of amnesty, but France has always refused tax-related amnesties.”

The Swiss lawyer feels Rubik may actually be worse than an amnesty: “A classic tax amnesty helps the return of money from tax fraudsters. With Rubik it’s the opposite – money will stay abroad.”
 

Paris is not totally against the idea. On August 27 French Budget Minister Valérie Pécresse told Le Figaro newspaper the government had not excluded finalising a similar accord.

“We are going to study the question, examining accords signed by Germany and Britain to see if they are compatible with our republican principles,” she said.

“Such accords should allow the lifting of Swiss banking secrecy when requested by a French judge. Our principles are not negotiable.”

Mario Tuor, spokesman for Switzerland’s State Secretariat for International Financial Matters, said the French authorities were “interested but quite sceptical”.

“If they see the system works, they could change their mind,” he said.

Snowball effect

Switzerland is certainly hoping that Rubik will have a snowball effect.

“Bern tried to convince the European Union that Rubik was similar to the automatic exchange of tax information, but in vain,” said Kenel. “Switzerland then went directly to each of its European partners in the hope of slowly generating interest.”

For Paris the issue is partly about coherence and principle, say observers.

“And timing”, said Nicolas Zambelli, a tax lawyer based in Geneva.

Swiss banking confidentiality laws have been under constant attack since the financial crisis of 2008-9. In 2009, Switzerland was forced to concede enhanced information exchange and quickly renegotiate a host of double taxation agreements to get off an OECD black list of tax havens. One of those was with France, which entered into force on January 1, 2010.

“For two years Paris has pursued a strategy on its territory of fighting tax evasion,” said Zambelli. “This includes higher fines for fraudsters and longer periods covering tax evasion.”

In such circumstances it is difficult to take a step backwards, “especially in an election period,” said the Geneva lawyer.

President Nicolas Sarkozy is unlikely to make any concessions to rich taxpayers during the current hard times – at least not until after the presidential elections in May 2012, he noted.

Secrecy in spotlight

The cherished Swiss banking confidentiality laws have been under constant attack since the financial crisis of 2008-9.
 
With many developed – and indebted – countries seeing large holes blown into their tax revenues, cracking down on tax evasion suddenly became a priority.
 
In 2009, Switzerland was forced to concede enhanced information exchange and renegotiate a host of double taxation agreements to get off an Organisation for Co-operation and Development (OECD) black list of tax havens.
 
Also in 2009, UBS admitted to aiding and abetting US tax evaders and had to pay a hefty fine. The Swiss government was subsequently forced to hand over the names of 4,450 US clients of UBS to the US authorities.
 
Several countries, including Britain, Italy, the US and Germany, offered tax amnesties in 2009 and 2010 to give citizens the chance to come clean about tax evasion.
 
Discovery of tax cheats was enhanced by the illegal sale of Swiss bank client data by a whistleblower. Germany and France were the main purchasers of the controversial data CDs, but information was passed on to other countries.
 
The US is currently pursuing its clampdown on other Swiss banks. Credit Suisse was recently informed that it was under investigation while several other banks, including cantonal owned enterprises, are thought to have fallen under the spotlight.

(Translated from French by Simon Bradley)