German anger meets Swiss wrath in tax row

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The Swiss government has reacted angrily to a stinging attack on its banking secrecy laws by the German and French finance ministers.

Following its neighbours’ joint call for Switzerland to be added to a tax haven blacklist, the foreign ministry on Wednesday summoned Germany’s ambassador to Bern to express its “surprise and discontent”.

“One does not treat a partner country in such a way,” Swiss Foreign Minister Micheline Calmy-Rey said.

Calmy-Rey took exception to Peer Steinbrück’s “violent” language. The German finance minister spoke of “using the whip” against Switzerland.

“The choice of language is very unfortunate seeing as Switzerland is pursuing a partnership and dialogue with Germany … and the European Union,” she added.

France and Germany claim that Switzerland is encouraging tax fraud by refusing to exchange information for tax purposes, unless fraud has already been proven.

It is an issue that refuses to go away. Switzerland stubbornly defends its banking secrecy laws while other countries stamp their feet in annoyance.

Pressure

Frustrated at having potential tax revenue squirreled away in Switzerland, France and Germany have decided to increase pressure on their neighbour.

The battle cry came during a conference on financial transparency in Paris on Tuesday, attended by representatives from 17 countries belonging to the Organisation for Economic Co-operation and Development (OECD).

Those present agreed that the OECD needed to update its blacklist of “uncooperative” tax havens – currently comprising Liechtenstein, Andorra and Monaco – by mid-2009.

The Swiss media reacted with a mixture of defence and caution.

“Certain politicians are strutting around during the financial crisis, seeing themselves not just as saviours of the banks. They are simultaneously trying to advance their own agenda. The German finance minister is one of these politicians,” said the Neue Zürcher Zeitung.

The Lausanne paper 24heures said the issue of banking secrecy and taxes was not dead but “threatened”.

“The 17 OECD states that declared the tax paradise hunt open will certainly target Switzerland,” it said. “Nothing in this world lasts for ever – not even Swiss banking secrecy!”

National pride

While it may be a major irritant to outsiders, banking secrecy gives Switzerland such a valuable competitive advantage that the country will go to great lengths to keep the status quo.

The issue is sometimes presented as a question of national pride. One of its most stalwart supporters is the chairman of the Swiss Banking Association, Pierre Mirabaud.

At a recent press briefing where the subject was raised, Mirabaud argued that protecting privacy was quite simply a basic human need.


“Let us remind all our foreign critics once more: the electorate decides the future of banking secrecy in our country, not functionaries in Brussels, senators in Washington or OECD bureaucrats in Paris.”

“Extremely uncooperative”

Andreas Missbach of the Berne Declaration, a non-governmental organisation which has been campaigning against Switzerland’s tax haven status for many years, is on the opposite side of the fence.

“Our neighbours are right. Switzerland is extremely uncooperative when it comes to tax issues. You can see that from the position Switzerland has taken within the OECD where it has constantly tried to stop or undermine any initiative that went in the direction of information exchange for tax purposes.”

Missbach points out that there is a double standard in Switzerland’s double taxation agreement with the United States.

Switzerland cooperates much more with the US than it does with EU countries and even goes so far as to assist in cases of tax evasion, he says.

This despite the fact that Swiss law does not recognise tax evasion as a criminal offence. For the rest of the world, the banks will only cooperate with foreign investigators if fraud can first be proven.
 

In brief

Swiss banks have adopted the “know your customer” rule to avoid ill-gained money, but tax evasion – as opposed to tax fraud – is not classified as a crime.

Switzerland has been gradually introducing a withholding tax on interest made in Swiss bank accounts belonging to European Union taxpayers.

OECD Secretary-General Angel Gurría has previously stated that excessive bank secrecy rules and a failure to exchange information on foreign tax evaders were relics of a different time and had no role to play in the relations between democratic societies.

“Switzerland operates strict banking secrecy that some of the other OECD countries are concerned about because it impedes their investigations into tax dodging.

“They have been saying for a time that Switzerland should join them in being prepared to exchange information for the purposes of tax enforcement,” Gurría said.

History

2000: The OECD puts Switzerland on a list of 47 countries with “potentially damaging conduct” in tax matters.

2004: Switzerland makes concessions on the taxation of holdings and is removed from the list. During negotiations with the EU for the bilateral accords tensions arise over the interest tax. The issue is settled with the conclusion of the Bilateral II.

Since 2005: Dispute between Switzerland and the EU over corporate tax privileges in the individual cantons. Switzerland rejects the EU reproaches referring repeatedly back to the free trade agreement of 1972.

2007: The EU Commission receives a negotiation mandate from the Council of Ministers for the tax dispute with Switzerland. The Swiss government is prepared to participate only in dialogue, not negotiations.

2008: Switzerland gets caught up in the vortex of the German-Liechtenstein tax dispute. German politicians sharpen their threats against tax havens “like Switzerland”.