Tax haven grey list makes Switzerland sweat

The naming of Switzerland on an international "grey list" of tax havens shows that powerful critics still mean business despite a Swiss climbdown, experts believe.

But while politicians and bankers have taken great exception to the perceived slight, observers say there is nothing to worry about provided Switzerland implements its promises in a timely fashion.

Switzerland joined more than 30 other countries on the Organisation for Economic Cooperation and Development (OECD) grey list at the G20 meeting of the world’s most influential political leaders on Thursday.

Jörg Walker, a partner at tax specialists KPMG, told swissinfo that the grey list represents a message that Switzerland would be closely watched.

“It is understood that Switzerland intends to change. But so far we have only seen words and not actions, so there is some time pressure to implement. There is no need to panic, but it is also no time to be lazy,” he said.

Devil in the details

The lists follow an intense year of coordinated international political pressure on Switzerland to stop harbouring the assets of tax dodgers from other countries.

Last month, Switzerland – along with other countries – agreed to conform to OECD standards of tax cooperation. Swiss officials will renegotiate tax treaties to provide information on suspected tax cheats who are hiding their cash in Swiss banks.

The question is how far Switzerland is prepared to go to meet the demands of other countries.

Walker said there were issues to be resolved, such as how strong the claim of tax evasion had to be, the time frame of the investigation, if there would be an amnesty and from where the information was to come.

“It is important to know how concrete the case has to be for information to be provided. There could be some quite heavy discussion.”

Previously, Swiss banking secrecy laws and a refusal to recognise tax evasion as a crime have hampered international investigations. These laws would remain in force, but the new treaties would drive a hole through these barriers in the case of tax evasion.

Public resentment

“The distinction between tax evasion and fraud will be made obsolete when the double taxation treaties are renegotiated,” Peter Kunz, a tax expert at Bern University, told swissinfo.

“Switzerland would be totally in compliance with the OECD tax convention if these changes are implemented in the next two years or so.”

But Kunz warned that outside impatience to get the reforms implemented could derail efforts in Switzerland to get them passed. The changes are expected to go to a referendum.

“The Swiss population is in favour of these concessions, but there is a danger that the mood could change if more pressure is put on Switzerland from abroad in the next few months,” he said.

Many Swiss have accused other countries, such as the United States and Britain, of double standards as they turn a blind to different tax evasion schemes – Trusts and “shell” companies – operating inside their own borders.

“It leaves a bad taste that bigger countries are not doing this [reforming] inside their own countries,” Kunz said.

swissinfo, Matthew Allen

Grey list reaction

Politicians, business leaders and the Swiss financial community have all registered resentment that Switzerland was named on the grey list despite making promises to reform.

Swiss Finance Minister and President Hans-Rudolf Merz said he regretted the move. “The fact that Switzerland as a founding member of the OECD was never included in the discussions on drawing up lists is particularly strange,” his office said in a statement.

Urs Roth, president of the Swiss Bankers Association, said he was disappointed and that the lists “lacked credibility”.

Pascal Gentinetta, director of the Swiss Business Federation economiesuisse, said the naming of Switzerland on the list was “unacceptable”. He called on the US and Britain to be placed in the same bracket.

International tax row

Many countries have long suspected tax cheats of hiding their assets from the tax authorities behind the cloak of Swiss banking secrecy. But the financial crisis has brought the issue to boiling point.

Last October, German Finance Minister Peer Steinbrück and French Budget Minister Eric Woerth called for Switzerland to be blacklisted as an uncooperative tax haven by the OECD.

UBS bank was forced in February to hand over details of some clients and pay a $780 million ($676 million) fine during a US tax evasion investigation. The US tax authorities, however, are still demanding more client data.

The British government waded into the row in February, with Prime Minister Gordon Brown starting a global crusade to clamp down on tax havens worldwide. The G20 countries decided on Thursday to include Switzerland on a grey list of tax havens that have promised reform but not yet delivered changes.