Not too long ago Swiss banking secrecy seemed set in stone, but its days now appear to be numbered. The EU is about to start new negotiations with Switzerland; banks will be permitted to provide data to the US authorities and even Swiss bankers now suggest the country should adopt automatic exchange of information.
The EU is to start negotiating a new tax accord with Switzerland, Liechtenstein, Monaco, Andorra and San Marino. As an extension of the Savings Tax Directive, and it is understood that they will be expected to conform to the rules of automatic information exchange.
This could be the final nail in the coffin for banking secrecy. Austria and Luxembourg’s decision to support plans for automatic exchange of information at EU level has dramatically changed the situation for Switzerland. The Swiss Private Bankers Association has urged the Swiss Federal Council to opt for automatic exchange of information, instead of its “white money” strategy, particularly with the EU. It makes sense to have just one solution to ensure tax conformity, and it is time to remove the uncertainties currently facing the Swiss banking industry. The white money approach involves bilateral agreements along the lines of the one now in force with the UK, which applies a withholding tax rather than automatic exchange of information. It is not accepted at international level.
Swiss Finance Minister, Eveline Widmer-Schlumpf, also recently said she would be prepared to accept automatic exchange of information if it was a globally applied standard. The way things are progressing, she may need to accept it even before then.
Long-running tax evasion dispute with US
The US government has waged a long campaign against Swiss banks, accusing them of helping wealthy Americans hide income and assets from the US tax authority.
In 2009 UBS bank acknowledged that it had helped thousands of Americans evade tax. It paid a $780 million fine to the US Department of Justice and handed over data on around 4,450 clients. Other Swiss banks still need to resolve the issue. Banks like Credit Suisse and Julius Baer are coming under increased pressure from the US to do so. The Swiss government has published draft legislation to allow banks to disclose information to the US government about American clients, and is trying to push it through parliament as soon possible. For one year, banks will be allowed to circumvent Swiss banking secrecy laws to “safeguard their interests”. Although clients’ names and account details are not included, other key data which will help the US authorities track tax evaders will be. They can then use the Swiss/US double tax agreement to make formal requests for specific client information. Banks which do not enter into settlement risk facing civil or criminal proceedings if the US has evidence of their complicity in tax evasion. This could have severe consequences.
In January Switzerland’s oldest private bank Wegelin & Co pleaded guilty to charges relating to helping Americans evade $1.2bn of taxes. It was ordered to pay $58 billion to the US authorities. The bank, which was founded in 1741, then announced that it would have to close as a result. The Swiss government has also endorsed its FATCA deal with the US. This is the US Foreign Account Tax Compliance Act, whereby foreign financial institutions are obliged to share information on their American clients with the Internal Revenue Service. Switzerland has agreed a simplified version which will ensure that accounts held by US persons are disclosed to the US tax authorities, either with the consent of the account holder or through the normal administrative assistance channels as per the double taxation agreement.
We are entering a new era. As more tax authorities exchange information, there is no hiding place. How does all this impact your international tax planning and wealth management? Talk to Blevins Franks for advice on tried and tested legitimate tax planning solutions.
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This article was written on the 18th of June, 2013.