Swiss banks propose global tax collection service

Keystone

The Swiss Bankers Association (SBA) has devised a plan to silence tax evasion critics by collecting levies on foreign clients on behalf of other countries.

The system would improve on the current withholding tax agreement which Switzerland has with the European Union. The SBA believes the plan, although “complicated and costly”, is the best way of preserving banking secrecy.

Switzerland has come under fire from several countries in recent months, complaining that secrecy and the failure to accept tax evasion as a crime encourages foreign nationals to hide their assets in Swiss banks to escape local levies.

Earlier this year, Switzerland – along with many other states – agreed to cooperate more fully with foreign tax agencies by applying Organisation for Economic Co-operation and Development (OECD) guidelines on the exchange of information.

But despite hopes of being removed from the OECD “grey list” of so-called tax havens and renegotiating double taxation agreements with other countries, Switzerland still faces calls to put its house in order.

High price

SBA chief executive Urs Roth believes the best way to fend off continued attacks is to gather tax on the profits of foreign banking clients under the condition of anonymity.

“Our proposal would try to balance the privacy rights of tax compliant clients with helping governments collect what they are owed,” Roth told swissinfo.ch at the SBA’s annual conference in Zurich on Thursday.

“Banks would collect taxes that are owed to the client’s government in the form of a withholding tax. We would transfer this money to our government, who would in turn transfer it to the government of the taxpayer.”

The ambitious plan to “mirror” the tax systems of other countries would go further than the EU Taxation of Savings Directive that collected SFr738 million ($715 million) in 2008. Not only would it take into account a multitude of tax rates, but it would also cover profits on dividends, investments and capital gains.

“We conducted a feasibility study that has shown us that it is complicated and would cost quite a lot of money to implement, but it is feasible,” Roth told swissinfo.ch.

Bruising few months

The Swiss finance ministry has shown an interest in the scheme and it would be up to that federal body to sell the idea to other countries, according to Roth.

The SBA has previously rejected the idea of Swiss banks becoming, in effect, a tax collection agency of other governments. But Roth admitted that the scheme would extend such activities to countries outside of the EU.

“The world is changing and there is clearly a focus on tax enforcement,” he said.

That enforcement recently ensnared UBS in the United States as the bank admitted some of its advisors had aided tax evasion, further damaging the reputation of the Swiss financial market.

But Roth remains convinced that Switzerland can bounce back from a bruising few months that culminated in a massive 31 per cent drop in Swiss banks’ profits in 2008.

The SNB’s latest research suggests that while the country as a whole did not lose any wealth management business this year. And the fact that other countries also adopted OECD tax standards has also helped Switzerland.

“I am quite confident that we will have a level playing field. It would have been more difficult for Switzerland if other countries, such as Luxemburg or Singapore, did not follow the same route,” Roth said.

Matthew Allen, swissinfo.ch in Zurich

Banking Barometer

The SBA released a health check of the Swiss banking sector on Thursday called the Banking Barometer 2009.

It showed Swiss banking profits had slumped a dramatic 31% last year to SFr49 billion ($47.5 billion), the worst performance since 1997.

Combined assets under management also took a battering as stock markets plummeted in 2008. Equity holdings (assets held in the form of shares) posted the biggest losses, falling 38% in value.

But Swiss banks still managed SFr4 trillion ($3.88 trillion) of clients’ assets at the end of last year. The recovery of share prices has presented better news so far this year, with managed assets growing 3.6% in value.

Banks continued to recruit through the bad times, with staffing levels up 1.2% in 2008 having swelled by 4.4% in 2007. But the SBA believes the number of employees will drop by 2% this year.

Lending also remained stable, with SFr845 being handed out in 2008 – a rise of 3%.

Interest rates

The Swiss National Bank (SNB) kept interest rates on hold on Thursday as economic conditions remained depressed.

The SNB interest rate band remained at the low level of 0-0.75% with a key target rate of 0.25%.

However, the central bank revised its gross domestic product (GDP) predictions upwards, predicting a decline of 1.5-2% this year, compared to a -3% forecast in June.

The price of goods and services in Switzerland is expected to fall by 0.5% in 2009.