/ 24 March 2009

Swiss come clean. Sort of

Switzerland’s decision last week to play by international tax rules is the result of political arm-twisting — aided by the sting of scandal.

The long struggle to persuade the Swiss to abandon banking secrecy is not over. There is still plenty of room for foot-dragging and hair-splitting and it is likely to be several years before information is exchanged. But last week’s development was important.

In accepting the Organisation for Economic Co-operation and Development’s (OECD) principles for the exchange of tax information, the Swiss finally abandoned their insistence that tax evasion is not a crime unless it involves active fraud, such as forging paperwork.

They will continue to treat evasion by their own citizens as a civil matter, but finally, for foreigners, they have agreed in principle to provide on request the details of wealthy individuals and corporations who have income originating in Switzerland.

The Swiss had faced the deeply undesirable prospect of finding themselves on a blacklist of uncooperative tax havens, to be announced at the G20 meeting in London in April.

This was not simply a threat of being named and shamed but of being subjected to economic sanctions designed to drive away billions of dollars of their banking business. Switzerland earns 15% of its GDP from the finance sector and Swiss banks are believed to hold a third of the estimated $11.5-trillion of personal wealth hidden offshore.

In the background, Switzerland’s political authority has been severely weakened by the United States’s investigation into one of its oldest and most prestigious banks, UBS, which has been caught brazenly helping thousands of wealthy Americans evade taxes.

UBS staff have also broken the US law that forbids foreign bankers to tout for business, writing lies on their visa forms about the purpose of their visits to the US, carrying business cards that concealed their true profession and deploying counter-surveillance techniques.

Switzerland continued to resist, arguing it could not afford to change its ways because it would lose so much business to other havens. But in clever diplomacy the OECD has persuaded all its main competitors — Liechtenstein, Singapore, Hong Kong, Austria, Belgium and Luxembourg — to announce they will also provide information on tax evaders.

But this is one battle in a long war against tax dodgers. No information will be disclosed until the Swiss have negotiated detailed double-taxation agreements with other nations — which could take several years.

The Swiss indicated they will provide information only if a detailed request is submitted, which complies with their procedures. They are also calling for a “grandfather clause” allowing them to continue concealing all information about accounts or investments made with them in the past.

Bruno Gurtner, the Swiss economist who chairs the global board of the Tax Justice Network, warned that nothing will change until the new treaties are negotiated.

“People with accounts in Switzerland have the chance to move their money away to other havens that still do not accept the principles,” he said.

Obama fingers tax loopholes
The Obama administration has vowed to close loopholes and to come down hard on illegitimate use of tax havens, writes Andrew Clark.

President Barack Obama has lent his support to a “stop tax haven abuse Act” in Congress, which imposes tougher reporting requirements on individuals and companies that squirrel away assets overseas. The Bill would increase fines for abusing tax shelters and give greater resources to the Internal Revenue Service.

A recent study by the United States Government Accountability Office revealed that 83 of America’s 100 largest companies have businesses in tax havens such as Bermuda, the Cayman Islands and the British Virgin Islands — including recipients of government bailouts such as Citigroup, AIG and Bank of America.

Carl Levin, a Democrat senator sponsoring efforts to squeeze tax havens, recently accused offshore territories of engaging in “economic warfare against the US and honest, hardworking Americans”.

Levin estimates US tax authorities lose $100-billion annually from assets sheltered overseas. “Offshore tax haven and tax shelter abuses are undermining the integrity of our tax system and increasing the tax burden on middle-income families,” he said. —