Monday, 13 February 2012

European Fatca deal “threat to Swiss secrecy”

by Matthew Allen and Scott Capper, swissinfo.ch

A deal between the United States and major European countries could step up pressure on Swiss banking secrecy, according to an international tax campaigning group.

The US tax collector (Internal Revenue Service) always knocks more than once The US tax collector (Internal Revenue Service) always knocks more than once (Keystone

The five biggest European economies are negotiating a system to implement the US Foreign Account Tax Compliance Act (Fatca). Tax Justice Network (TJN) believes it could embolden the European Union into demanding a similar deal with Switzerland.

Britain, France, Germany, Italy and Spain appear set on ordering their banks to hand over details of accounts owned by US citizens containing more than $50,000 (SFr46,000). The governments would then pass data on to the US, alleviating costs for banks and pressure on client secrecy laws.

While still a long way from completion, such a Fatca implementation deal could encourage the EU to tear up existing tax contracts with Switzerland and insist on a European version of the tough US law, according to TJN director John Christensen.

“The Fatca proposals could well be adopted by other countries largely because they are exasperated by the lack of progress they are making [with Switzerland on tax evasion issues],” Christensen told swissinfo.ch.

Deal making

Switzerland and the EU have been staging a running battle over tax evasion and banking secrecy for a number of years.

Loopholes in the 2005 savings directive, that requires Swiss banks to collect taxes on undisclosed accounts of EU nationals, have led to fewer funds being handed over than expected.

Switzerland has lifted some obstacles to giving out bank client data to other governments in recent years, but the EU continues to push for an automatic exchange of information, even if no cheating is suspected.

The Swiss authorities attempted to get around this demand by arranging separate deals with Britain and Germany last year, but these new withholding tax treaties are not yet rubber stamped and may never come into force.

Frozen out

Denmark made it clear on assuming the presidency of the EU at the start of this year that tax  negotiations with Switzerland would be a priority for 2012.

“There is now very clear political pressure for European governments to adopt a similar approach to the US,” Christensen told swissinfo.ch. “The Fatca route…would clearly have a much stronger revenue collecting effect [than existing EU-Swiss agreements].”

Better still for tax collectors, Fatca wields the very big stick of freezing non-compliant banks out of the US financial market. Christensen believes a similar threat in Europe would be the only way to force tax havens to amend their ways.

“If Swiss banks do not cooperate it would lead to them being blocked from key markets,” he said.

Strong protests

The threat of Fatca, passed in the US in 2010 and due to be phased in from 2014, has been enough to elicit strong protests from the Swiss financial sector and politicians.

“Given its significant international activity, particularly with the United States, Switzerland will be greatly affected by this legislation,” the Swiss finance ministry said in a statement.

“[The State Secretariat for International Financial Matters - SIF] made it clear to the US authorities during a number of different meetings that the implementation of Fatca had to take account of the concerns of the financial institutions that would be affected.”

UBS, Credit Suisse and other Swiss banks have already stopped offshore accounts in the US in anticipation of such stiff regulatory hurdles.

Martin Naville, chief executive of the Swiss-American chamber of commerce, believes the negotiations by the five European countries would eventually act as a template for Fatca compliance throughout the EU.

Silver lining

Naville agreed that this could lead to the EU toughening its stance with Switzerland. That could take the form of a demand for Fatca-style automatic exchange of information from Swiss banks channelled through the Swiss government.

Switzerland has no choice but to comply with Fatca and could not expect to get a better deal than the European powerhouse nations, he warned.

“Could Switzerland get special treatment and concessions from the US? Certainly not,” Naville told swissinfo.ch.

But Naville, who last year said that Fatca could have “disastrous consequences” on both sides of the Atlantic, cautioned that it was too early to draw clear conclusions with European negotiations at such an early stage.

One positive effect of the negotiation process is that the big five European economies have already managed to force concessions out of the US. These include a reciprocal exchange of information from the US and a less onerous application of Fatca for certain institutions.

“The European negotiators would be able to clear up some of the strict, and rather strange, rules far better than Switzerland could do on its own,” Naville told swissinfo.ch.

Matthew Allen and Scott Capper, swissinfo.ch

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