Ticino banks ride out Italian tax amnesty

Italian police monitor the flow of traffic on the border between Italy and Switzerland Keystone

Fears that an Italian tax amnesty would lead to a mass exodus of money from banks in canton Ticino have so far proved unfounded.

There have been storm clouds hovering over banks in Switzerland’s sunniest canton ever since the Italian finance minister, Giulio Tremonti, announced the fiscal amnesty back in November. He has now extended the offer by three months to May 15.

The amnesty covers all money deposited abroad. But the most popular tax haven for Italians is the city of Lugano in Ticino. With the service sector now accounting for three-quarters of the canton’s GDP, the Italian-speaking canton stands to lose the most as a result of the amnesty.

So have Italians been closing their accounts in Switzerland and taking their money home? The jury is still out.

A recent study by Credit Suisse First Boston estimated that €18 billion had already been repatriated to Italy. But that is just a fraction of the SFr400 billion (€266 billion) Italians are estimated to have deposited in Switzerland. Of that amount, SFr250 billion is in Ticino, SFr100 billion in Zurich and SFr50 billion in Geneva.

Limited impact

Publicly, the Swiss banks are not panicking. They say the impact of the amnesty on business has been minimal. The Banco di Lugano says it has lost barely 1.7 per cent of its capital, while the Banca del Gottardo puts the figure at three per cent.

Christoph Meier, a spokesman for UBS, said the impact on his bank had so far been “limited”.

He told swissinfo that less than ten per cent of UBS’s Italian clients had enquired about the amnesty, and far fewer had actually taken action. But of those that had decided to take advantage of it, half had been persuaded to move their money to UBS branches in Italy.

A similar policy is being pursued by other Swiss banks – such as the Banca del Gottardo and Credit Suisse – which have a foothold in Italy.

Not only tax evasion

“There’s a lot of speculation flying around and lots of figures being bandied about at the moment. It’s really too early to give an assessment,” says James Nason, spokesman for the Swiss Bankers Association.

“It’s unrealistic to assume that nobody in Italy is going to take advantage of this amnesty. But we’re convinced that people don’t just bring their money to Switzerland to avoid paying tax. There are a lot of other attractions,” he told swissinfo, pointing to Switzerland’s political and monetary stability, and the know-how and services offered by its banks.

One senior banker told swissinfo that, so far, the Italian action had been “no big deal” and that it had given his bank “an opportunity to diversify its client base”.

Quality banking

Prof Hans Geiger, of the Swiss Banking Institute in Zurich, says he is not surprised by the absence of a rush for the exits. He says someone taking advantage of the amnesty is not obliged to move their money back to Italy.

“An Italian citizen has the right to invest anywhere in the world and the quality of Swiss banking is far superior to that in other countries. He can simply declare his money, pay a small tax penalty and keep his money where it is,” Geiger told swissinfo.

Other euro-zone members, such as France and Germany, are watching the Italian experiment closely. If these countries were to adopt a similar approach to tackling capital flight, it could have a potentially disastrous impact on the Swiss banking industry in Geneva and Zurich as well as Lugano.

However, Nason and Meier say there is no evidence as yet that any other country is intending to follow the Italian example. But Geiger points out that countries that are struggling to pay welfare benefits might be tempted to do so in future.

“It would be advantageous for most countries to think about a tax amnesty,” he says.

Switzerland’s big banks are certainly taking the threat seriously. The Credit Suisse Group has recently launched new financial services in Spain and Germany, in the anticipation that those countries may also announce fiscal amnesties.

“I can easily see Spain following Italy, in which case we have to be prepared,” CSG chief Lukas Mühlemann says.

Banking secrecy

A great deal may depend on the outcome of negotiations on the next raft of bilateral accords between Switzerland and the European Union. A number of EU states are keen to see some erosion of Switzerland’s strict banking secrecy laws.

The Swiss are adamant that banking secrecy is not up for discussion, and have suggested a withholding tax as an alternative.

“In the longer run, we need to look at why people evade tax,” Nason says. “They probably feel the tax burden is too high, or they feel their governments are spending tax revenues wastefully.”

“It’s surely a sign that something has gone wrong between the state and its citizens,” he adds.

Of all the countries concerned about tax evasion, it is the Italians, under Prime Minister Silvio Berlusconi, who have made the most aggressive attempt to recover money lost to their economy. They want these funds moved back into local banks or invested in Italian capital markets, where they can benefit the local economy.

Many Italians opened bank accounts in Switzerland in the 1960s and 1970s, fearful of a communist government, Red Hand Brigade terror and mafia extortion.

The Italian government estimates that its citizens have some €500 billion in savings abroad. It expects around €50 billion to return to Italy.

To add to the tension between Italy and canton Ticino, Italian police have been filming the number plates of cars crossing the border. It is believed that many people are using the amnesty to launder money in Switzerland before repatriating it back to Italy.

The cantonal government is so concerned about the impact on its economy that it has asked the federal authorities to intervene.

by Roy Probert