Cabinet moots steps to clean-up tax haven image

Finance Minister Widmer-Schlumpf explains the main points of the cabinet's approach on the financial centre strategy Keystone

The Swiss government has agreed in principle on extending due diligence requirements of banks and improved legal assistance on tax matters with other countries.

The finance ministry has been mandated to prepare concrete measures by next September in a bid to strengthen Switzerland’s financial centre, which is facing sustained pressure by several countries, including the United States.

Finance Minister Eveline Widmer-Schlumpf said the report discussed in Wednesday’s regular cabinet meeting was designed to outline the strategy for a “credible, tax compliant and competitive Swiss financial centre.”

She said the aim is to settle past tax problems with individual countries through amended deals and a withholding tax to ensure that investment income and capital gains of Swiss bank clients living abroad are taxed in line with international regulations.

Widmer-Schlumpf said the cabinet agreed on three tenets, including upgrading due diligence rules to prevent banks accepting untaxed assets. Besides these additional duties for banks, their clients would also be required to make a declaration on the fulfilment of their tax obligations in their home countries.

“We are convinced that this strategy allows us to live up to a legitimate demand of bank clients for privacy and to the equally legitimate demands of foreign countries to tax their citizens,” she told a news conference.

Widmer-Schlumpf said the cabinet continued to refuse the adoption of an automatic exchange of information, notably demanded by the European Union.

“The government believes that an automatic exchange of information would not be efficient and would contradict our policy of protecting the privacy of bank clients.”

US deal

Widmer-Schlumpf said the strategy report, which was delayed in November, was not directly linked to a scheduled debate in parliament next week over an amended tax accord with Washington.

If the House of Representatives follow the Senate, legal assistance will be granted to US authorities investigating suspected tax dodgers even if the bank client is not named but based only on evidence of on certain “patterns of behaviour”.

But she added that a smooth passage of the bill next week was in the government’s interest amid pressure by the centre-left Social Democrats and the rightwing Swiss People’s Party to reject the deal.

At least 11 Swiss banks are under investigation by Washington in the wake of a 2009 accord to transfer data concerning around 4,500 US bank clients suspected of violating US tax laws. The move was designed to stave off a potentially disastrous legal action against Switzerland’s main commercial bank, UBS.

But it also chipped away at Switzerland’s tradition of banking secrecy, which helped build up a $2 trillion (SFr1.82 trillion) offshore wealth management industry.

Approval of tax deals is also pending with neighbouring Germany and Britain.

Mixed reaction

Wednesday’s government policy statement met mixed reaction from political parties.

The Social Democrats said they welcomed the cabinet policy of “cleaning up the financial centre”, force banks to adopt a clean money strategy and reject untaxed money. The group said its most of its parliamentarians would now support the US tax deal.

The centre-right Radical Party, traditionally close to business interests, praised the government for taking more time to present concrete measures and refusing to cave in to pressure from the left.

The rightwing Swiss People’s Party, which has staunchly defended banking secrecy, criticised the government’s plans, accusing it of overloading the banks with further administrative duties even though they are not part of the tax system.

The centre-right Christian Democrats had already announced last week they would support the government’s strategy. The party’s spokeswoman said on Wednesday it was a step in the right direction, but further details were needed.

The Swiss Bankers Association said it was satisfied the government was sticking with a strategy it had already outlined and that it was still refusing the automatic exchange of client data.

But it called for any new regulations to be applied to all financial intermediaries and not just the banks.

However, the non-governmental organisation Berne Declaration, which works for equitable relations between the industrialised world and developing countries, slammed the strategy as mere window dressing for a domestic audience.

Banking secrecy

The cherished Swiss banking confidentiality laws have been under constant attack since the financial crisis of 2008-9.  

In March 2009, Switzerland was forced to concede enhanced information exchange and renegotiate a host of double taxation agreements to get off an 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 nearly 4,500 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.  

The search for tax cheats was helped 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, and several other banks, including canton-owned enterprises, are thought to have also fallen under the spotlight.