Switzerland - a tax haven?
- Roberto Bernales
Posted under General Category
Oct 27, 2008

On 21 October 2008, 17 countries came together in Paris to discuss the impact that tax havens are having on their economies and their role, if any, in the current financial crisis. The meeting was called by the French Minister of the Budget, Eric Woerth, and the German Minister of Finance, Peer Steinbrück . Absent from the conference were Austria, Luxembourg, Switzerland and the United States. After the conference, Mr Steinbrück, with the support of Mr.Woerth, suggested that Switzerland should be included in the OECD black list of tax havens because its bank secrecy laws result in unfair competition and promote tax evasion by German citizens. In response, the spokesman for the Swiss Federal Department of Finance, Mr. Beat Furrer, remarked that the only authoritative body to decide on this subject should be the OECD and that it makes no sense to establish another discussion platform, as the one proposed by the participating countries. The Swiss position on this matter was previously clarified by Swiss Minister, Micheline Calmy-Rey, in a statement on 27 August, 2008, in which she stated that banking secrecy in Switzerland is not negotiable and that anyone who tries to force Switzerland to change its position would “break their teeth”.

Should the OECD revise the list of tax havens? Could the revision be done outside the framework of the OECD ? Should Switzerland be treated as a tax haven? Will the current financial crisis mean the end of off-shore tax havens?

Comments (16)
René Offermanns
Comment: In my view everybody should pay his fair share of tax. Therefore, I support the view that any country (also Switzerland) which pursuant to a bank secrecy refuses to exchange information to counteract abuse ultimately should be put on the OECD black list. However, before this is done proper discussions should take place with the countries concerned at the level of the competent body (the OECD) and not at newly created ad hoc platforms. Good discussions and some pressure could maybe result in some agreement, as the EU Savings Directive has shown, whereas adding those countries to the black list before any further discussion has taken place might close any room for a fruitful discussion. Finally, if the financial crisis will not mean the end of offshore tax havens it will at least have a substantial impact. States are currently losing a lot of revenue and they will, therefore, strengthen their efforts to counteract abuse and to make undesired tax savings more difficult.
October 27 04:09 PM
CHF
Comment: Switzerland: a tax heaven? The question is not new, especially during financial crises. Actually, it sounds too easy to make a scapegoat of Switzerland. If the EU countries want to keep good relationships with Switzerland (as the agreement on the savings), they should look for solutions in their own jurisdiction instead of pointing out the Swiss Confederation.
October 27 04:44 PM
Ezequiel
Comment: to CHF: How can I look at solutions in my jurisdiction if another sovereign State is helping my taxpayers evade my taxes? is this fair? come on, look for better arguments, such as that havens brings rates down and favour economic activities as the center for freedom and prosperity uses to say. By the way, see where all of this secrecy brought us? no confidence, no trust, no cash on the market because no one really knows how much liabilities are at stake, since they have all been stashed in OFCs. Transparency would make most people better off but probably you are not among those.
October 27 07:48 PM
Paul
Comment: I agree, the question whether Switzerland is a tax haven is not really new. However, right now in times of financial crisis it is a good opportunity to get back to that question....to answer it and to take actions! During the meeting on 21 October, it was also generally discussed to rewrite the OECD's black list of tax havens, as currently theres are only Monaco, Andorra and Liechtenstein on it. How about the Cayman Islands??? Does anyone seriously believe that the Cayman Islands are not a tax haven? Currently, it is possible for any country to avoid to get on the list to do so by making some vague commitments/promises. However, obviously this is not efficient/suffcient! The same goes for Switzerland, the time of empty promises is over!
October 28 10:32 AM
Eleni
Comment: I agree that Switzerland is a sovereign nation and as such has every right to maintain its position on bank secrecy laws. However, having said that, I see no reason why other countries, such as Germany or France, should sit idly by and allow their taxpayers to avoid or evade taxes by simply taking advantage of the secrecy regime in Switzerland. Just as Switzerland can say that "banking secrecy in Switzerland is not negotiable and that anyone who tries to force Switzerland to change its position would “break their teeth�", other countries should be able to protect their own tax base by insisting it be added to the tax haven list.
October 28 05:10 PM
Sasza
Comment: I agree with the statement that "everybody should pay his fair share of tax". Solidarity is a very nobel notion, generally accepted by the EU member states. But why would Switzerland stay solidar with other EU members? Swiss did not say YES to common Europe, they chose to stay aside and keep their own "values". Whether we like it or not, Switzerland has the right to have its own havenly system of taxation. Europe should not try to keep control over everything, harmonize, align...it's one small step to socialism.
October 28 06:32 PM
Charriol
Comment: I do agree that Swiss have a right to stay aside but I do not welcome the idea that a right to have heavenly tax system shall be abused as it is in Switzerland. The arguments given by both Mr. Woerht and Mr. Steinbrück are fair and it should also be emphasised that not only EU countries are bordered by the situation at issue. Consequently, in my opinion, the statements such as " Swiss did not say YES to common Europe" are not exactly relevant. The Swiss banking services are probably the best in Europe but the artificial competitive advantage they have is out of the OECD's wisdom. Therefore, I think that the time to make an attempt to negotiate on bank secrecy issues has come and the teeth to handle this negotiation have became strong enough.
October 29 01:47 PM
Narciso Rodriguez
Comment: I respectfully disagree with previous commentators. Bank secrecy is something that belongs to Switzerland by definition. On the other hand, Switzerland has a developed legal system which can tackle cases of abuse. Also, Switzerland is an OECD Member State and is expected to follow OECD recommendations on e.g. harmful tax competition. Isn’t something wrong with an organization that is considering blacklisting its own members? Instead of this witch hunt, OECD Member States should take some time for self-reflection. In my experience, many clients choose Switzerland because of the friendly and constructive approach of the Swiss tax authorities - they are able to understand complex structures and seek a fair tax treatment for taxpayers. Yes, taxpayers want to be treated as “clients� rather than cash cows in the hands of greedy tax authorities which try to tax anything and everything. To quote Calvin Coolidge, “collecting more taxes than is absolutely necessary is legalized robbery�!
October 29 08:08 PM
Narciso Rodriguez
Comment: I respectfully disagree with previous commentators. Bank secrecy is something that belongs to Switzerland by definition. On the other hand, Switzerland has a developed legal system which can tackle cases of abuse. Also, Switzerland is an OECD Member State and is expected to follow OECD recommendations on e.g. harmful tax competition. Isn’t something wrong with an organization that is considering blacklisting its own members? Instead of this witch hunt, OECD Member States should take some time for self-reflection. In my experience, many clients choose Switzerland because of the friendly and constructive approach of the Swiss tax authorities - they are able to understand complex structures and seek a fair tax treatment for taxpayers. Yes, taxpayers want to be treated as “clients� rather than cash cows in the hands of greedy tax authorities which try to tax anything and everything. To quote Calvin Coolidge, “collecting more taxes than is absolutely necessary is legalized robbery�!
October 29 08:10 PM
Peter Reinarz
Comment: In this case, Mrs Calmy-Rey is absolutely right. The German position is not sustainable. The Swiss legal and tax system - including the banking secrecy - applies to all taxpayers with Swiss ties - whether resident or not, and the banking secrecy equally protects the private financial sphere of any Swiss or foreign client of Swiss banks. Whoever has commmitted fiscal fraud as defined under Swiss laws and international treaties concluded by Switzerland cannot claim protection by Swiss bank customer secrecy rules. These are fundamental principles of Swiss public policy, and no one should expect that the Swiss Sovereign will approve any material changes to those principles in the foreseeable future. For the rest, Switzerland is not a tax haven - it cannot possibly be with a 35% withholding tax rate on Swiss-sourced bank account interest, bond interest and dividends, as well as a tax retention on non-Swiss sourced interest paid by Swiss intermediaries to EU resident individuals at a rate which will eventually reach 35% as well, 75% of such taxes being submitted by Swiss Revenue to the fiscal authorities of the EU residence states of such individuals.
October 30 04:38 PM
Peter Reinarz
Comment: Swiss banking secrecy protects the private sphere of any Swiss and non-Swiss resident customer of a Swiss bank, for so long as the customer has not committed any crime, including fiscal fraud as defined in Swiss laws and in international treaties concluded by Switzerland. That's a fundamental principle of Swiss public policy. It would be unreasonable to expect that the Swiss Sovereign would agree to materially change that rule. 35% withholding tax on Swiss-sourced bank account interest, bond interest and dividends, as well as tax retention for EU governments on foreign interest paid by Swiss intermediaries to EU resident individuals does not really indicate a tax haven, does it? Mrs Calmy-Rey is right.
October 30 04:50 PM
Gabriel Candil
Comment: The real problem here is political. Countries such as France and Germany are incapable of reshaping their public spending in order to offer a competitive tax rate to companies and individuals. These countries can no longer afford an expensive social system and are looking abroad instead of trying to reform their administration. Instead they are pointing their fingers to countries such as Switzerland who does not need to squeeze businesses and particulars to cover its public expenses. By the way, Ireland and Hungary have lower tax rates that many Swiss Cantons.
October 30 05:24 PM
gg
Comment: As an international society, can we just stamp out "abusive behavior?" Certainly, Switzerland prevents the effective flow of money through its neighboring OECD-member economies. Yet, Switzerland has built an industry based on their banking policies and there is no incentive to change.

For a metaphorical leap, is there any correlation to stamping out piracy in Somalia or burning poppy fields in Afghanistan? Poppy farmers make large profits. It seems as illogical to tell Swiss bankers to reform their banking laws as telling Afghans to stop farming or pirates to stop stealing Russian tanks. When weaknesses appear in a system, people find a way to profit from them.

Is it not better to find a proper incentive that casts a shadow on lucrative banking policies. What do the Swiss value more than their banking laws? I don't know. But, creating black lists is only effective to make it more profitable for someone to find a loophole.

November 04 11:45 AM
Konstantin
Comment: To Peter:"for so long as the customer has not committed any crime, including fiscal fraud...". I think here's the key to understanding the issue. For DE and FR every single EUR lost is almost automatically tax fraud (just mentioning the new German exit tax is enough). I cite Steinbrueck "I have every respect for Swiss sovereignty, but Germany's sovereignty in tax matters must also be respected". That already sounds like a fiscal war in OECD. I here raise a more fundamental issue. None questions the right to tax domestic-source income, of course there is no need for black lists for this case. From economic p.o.v. however, there is something fundamentally wrong about worldwide taxation (I know that's the way things work though). In the extreme case, the Vatican can also try to levy a 40% tax on all catholics. And lastly, why are not the German attacks targeting the US, which can be as opaque as it wants with regard to bank secrecy?
November 04 06:04 PM
Geetha
Comment: A view I share is that administrations with heavily budgeted and dysfunctional social systems are trying to point at Switzerland as it is the only country close enough to point out. The issue of Cayman Islands is very relevant. For rates, Cyprus has a lower tax rate than Switzerland not to speak of the tax rate in Delaware, USA. Europe needs to learn to adapt its budget to its revenues and to make its economic system more attractive by lowering tax rates and creating incentives for taxpayers. It is easy to blacklist countries, but not to have a steel grip on your taxpayers. They will hide their money rather than give it up for a spending spree on the "needy". Let's not forget in places like France some payments are made on a large scale without proper review of the person's exact financial conditions. So reform first before pointing fingers and try to better your own economy before grudging the attractivity offered by other countries...
November 09 11:46 AM
Bona Fide
Comment: It is not correct to state that Switzerland is pure offshore jurisdiction. Its tax system has all the elements of "normal European" tax system in terms of tax types, their rates, etc. Moreover, Switzerland has own internal anti-avoidance concepts such as: 1) Place of Management and Control; 2) Substance of foreign countires; 3) Decrees aimed against abusive use of DTAs; 4) Choice between treaty benefits and special tax regimes. Does actually any offshore has anything the same? Cyprus? Cayman? Jersey? The obvious answer is NO. For instance Bulgaria approved 10% tax rate starting from 2007 and no one is calling Bulgaria an offshore, whatever. The UK is implementing exemption on inbound dividends for the certain categories of taxpayers. Thus, my opinion is that some countries need to make their own internal tax systems more attractive to stop shifting income overseas and not complain about their neighbours.
December 17 12:51 PM
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