Swiss gov’t raises the ante for banks, other countries (update)

BERN, SWITZERLAND – The Swiss government announced the first phase of a strategy “for a credible, tax-compliant and competitive Swiss financial centre” Wednesday 22 February. The statement for the first time puts the emphasis on future offshore clients stating they are tax-compliant at home before an account will be opened.

The Federal Council says it has asked the Federal Finance Department to draw up the details of the strategy and it expects to announce a series of concrete steps by September 2012. Today’s statement provides an outline of what is to come.

The first step must be to settle past tax problems, says Bern, “in particular cases of clients living abroad whose assets have not been correctly taxed.” Existing clients’ assets will have to be “regularized” from a “tax viewpoint, thereby lowering the legal risks for banks”.

This will be followed by a three-prong programme that focuses on international cooperation and future taxation of investment income and capital gains for offshore accounts:

• International withholding tax agreements, beyond those negotiated with Germany and the UK: Bern calls this “an effective means of taxing taxpayers in accordance with the regulations of their country of domicile while safeguarding their privacy”. It notes that some issues “have not yet been fully resolved, [but] there is international interest in this approach”.
• Improved administrative and mutual assistance based on international standards as laid out in double taxation agreements (DTAs). Serious tax crimes and money laundering investigations will be more closely linked, but the key part of this will be the new Tax Administrative Assistance Act, out for public consultation until April. It replaces an ordinance that has been in place since October 2010, implemented quickly so that Switzerland could comply with an OECD deadline to observe its standards. The new law, Bern announced earlier, “assumes the basic features of the provisions of the ordinance. It contains the principle that administrative assistance will be provided exclusively upon request in individual cases. Switzerland will not provide any administrative assistance in the case of requests based on stolen data. Unlike the ordinance, which covers only administrative assistance in accordance with double taxation agreements, the Act also governs administrative assistance based on other agreements which make provision for the exchange of information relating to tax matters, for example the agreement on the taxation of savings income with the EU. The appeal procedure is to be streamlined and the deadlines shortened.”
• Tougher due diligence requirements for banks to more effectively prevent them from accepting untaxed assets; foreign clients will be required “to make a declaration on the fulfillment of their tax obligations”.

Switzerland manages the largest amount of private offshore funds in the world, 27 percent. The Swiss argue their share is more the result of financial management skills than banking secrecy and the new government strategy is banking on this. The Swiss have nevertheless found it hard to shake off the old cliche that the country is a tax haven (according to OECD definitions it is not, although Tax Justice Network views it differently), in a world where wealth management is rapidly changing.

Boston Consulting publishes an annual report on worldwide private assets under management and in May 2012 it noted that in the previous year these assets had grown by 8  percent to a record $121.8 trillion. It issued a press release noting that:

“‘Offshore private banking remains a tumultuous part of the business,’ said Anna Zakrzewski, a BCG principal and a coauthor of the report. ‘The relative importance of offshore centers is changing rapidly. Some are benefiting from continued asset growth, while others are suffering large asset outflows, with wealth being repatriated to onshore banks, transferred to other offshore centers, redirected into nonfinancial investments, or simply spent at a faster rate.’
“For most clients, however, the core value proposition of offshore banking remains, Zakrzewski said. ‘Offshore wealth managers offer a sense of stability and security that these clients cannot find in their home countries. Other clients value the expertise or access to certain investments provided by offshore private banks. To continue to grow, offshore wealth managers will need to adapt to the changes imposed by the push for greater transparency while accentuating their strengths in areas that remain extremely relevant to clients around the world.’”

Switzerland’s announcement comes at a time when media have been speculating whether the country and the US are reaching an agreement over a fine a group of 11 Swiss banks would pay, linked to US accusations they helped American citizens and residents hide money offshore in an effort to evade taxes. Today’s announcement covered by Reuters, Wall St Journal

 

Posted by Ellen Wallace on 22 February 2012 at 20:32 | permalink

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