In the last few months Switzerland has made progress in making its financial centre internationally compliant. Key areas are the automatic exchange of information, enhanced administrative assistance with other countries, and the reduction of foreign untaxed assets. But there remains work to be done in 2015.
The Swiss government, the majority of parliament and the Swiss Bankers Association all have the objective of tax conformity. They have come to recognise that the financial centre must be clean to achieve international acceptance and remain competitive on the world stage.
The next hurdle will be to pass examination by the Global Forum of the Organisation for Economic Co-operation and Development (OECD). In contrast to other European countries and major economic powers, Switzerland has lagged behind in regulation of tax cooperation and money laundering matters. This has led to it being listed by the Global Forum as a ‘phase one’ state, along with Botswana, Lebanon and Panama. Countries that do not go far enough in adapting their regulations are threatened with being blacklisted by the OECD as tax haven states.
Last year Swiss lawmakers made a number of regulatory changes. Since the summer of 2014, foreign banking clients no longer enjoy the right of being tipped off in advance when their information is handed over to another country in cases of administrative assistance. And owners of bearer shares can no longer remain anonymous.
Following these changes, experts now believe that Switzerland will be recognised by the Global Forum as having graduated to ‘phase two’ – the actual implementation of regulatory changes that comply with OECD standards of tax transparency and administrative assistance.
Jumped on the bandwagon
In parallel with the Swiss moves, OECD standards have developed further and at a rapid pace. Last October more than 90 countries committed to introducing automatic exchange of tax information, therefore ending banking secrecy for their foreign banking clients.
Of these countries, 58 want to implement AIE by January 1, 2017, while another 35 – including Switzerland – envisage setting up their own schemes a year later.
Switzerland had “for decades slept through international developments”, Peter V. Kunz, a professor of international law at the University of Bern, told swissinfo.ch. But the authorities realised around three years ago that the adoption of AIA “was unavoidable”. Finally, Switzerland realised that “AIE would come anyway, so they jumped on the bandwagon in order to influence the debate according to their own interests.”
And Switzerland has largely succeeded in having its concerns addressed in the draft version of the OECD AIE standards. These included the adoption of a single AIE standard worldwide, the concept of reciprocity, and respect for data protection.
Nevertheless, the financial centre will have to continue to adjust in the coming months and years.
“Switzerland has caught up, but we must make sure that we stay in this position as things develop further,” Kunz warned.
The planned introduction of Swiss AIE by January 1, 2018, faces a complex political test domestically. The first step is for the government to launch its draft proposals for public consultation. These will face a stiff examination in parliament early this year. The collection of signatures for a national referendum could follow – and seems highly likely given the current political environment. This would likely take place in the second half of 2017.
For foreign clients of Swiss banks whose assets are untaxed, the race is on to declare their funds with their home authorities. In the last few years, and particularly months, Swiss banks have been telling clients to either sort out their tax situation or withdraw their money.
To help along this process, several countries – most notably Germany and France – have been operating tax amnesty programmes. Germany’s runs out in early 2015, after which the authorities will impose much tougher penalties.
Switzerland has already signed up to the United States Foreign Account Tax Compliance Act (FATCA), a so-called one-way information exchange that has been in force since July 1, 2014. The agreement compels Swiss banks to automatically notify the US tax authorities of US clients who deposit money in their vaults.
The tax evasion dispute between the US and Swiss banks still rumbles on, with up to 40 banks suspected of harbouring tax cheats expected to submit further information to the US authorities. Such banks can count on the process lasting until at least the Spring of 2015.
Negotiations with Italy over untaxed Italian assets in Swiss banks have been running for two and a half years, with the Swiss financial centre hoping for a speedy conclusion to the diplomatic talks.
Naturally, there are no official statistics on how much untaxed foreign money is lying in Swiss bank vaults. But experts believe that a substantial portion of those funds, which had accumulated over decades, have now been either regularised or withdrawn from Switzerland.
“Anyone who has not signed up to a voluntary disclosure programme or is part of a tax amnesty will probably just move their funds away from Switzerland,” said Kunz. “Switzerland’s image, and that of its banks, has suffered in the eyes of foreign clients.”
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