Switzerland’s centuries’ old tradition of banking secrecy is coming to an end. It has pledged to collect tax related information from its financial institutions and automatically share the data with other governments each year.
Switzerland is the world’s biggest offshore centre, with $2 trillion in assets. Its prized banking secrecy has been slowly eroded under international pressure to increase tax transparency, particularly since the global financial crisis had governments looking for ways to increase tax revenue.
It has now taken a decisive step, and joined with other Organisation for Economic Cooperation and Development (OECD) countries in committing to automatic exchange of information between jurisdictions.
This was a historic move for Switzerland. Within a couple of years it will start to automatically hand over details of bank accounts to other countries.
The Financial Times described it as “one of most significant breakthroughs in the global crackdown on tax evasion”.
Swiss Economics minister, Johann Schneider-Ammann, acknowledged that the deal would end “old style” banking secrecy.
With Singapore also signing up, OECD tax director, Pascal Saint-Amans, told a press conference:
“It’s clearly the end of banking secrecy abused for tax purposes… It means the governments can really assess the tax owed by people who thought they could hide in other jurisdictions.”
Governments across Europe are expecting billions of Euros to be repatriated, as the owners realise they cannot hide the funds offshore any more.
The Declaration on Automatic Exchange of Information in Tax Matters was signed at the OECD’s annual ministerial council meeting in Paris in May.
It commits signatories to implement the new single global standard on automatic exchange of information – the aim is very clearly to end banking secrecy.
Participating jurisdictions will obtain all client information on bank accounts, and the beneficial ownership of companies and legal structures such as trusts, from their financial institutions. The data will be automatically shared with other governments each year – so not only in cases where tax evasion is suspected. Information includes taxpayers’ bank balances, interest income, dividends and sales proceeds used to calculate capital gains tax.
According to the OECD, more than 60 countries and jurisdictions have now committed to the early adoption of the global standard. Additional Global Forum members are expected to join over the coming months.
This single global standard for the automatic exchange of tax information was developed by the OECD and endorsed by the G20 in February. The OECD will provide more detailed commentary and technical information at the G20 meeting of Finance Ministers in September.
Those countries which have pledged to be early adopters will start to collect data from 31st December 2015. They have set a deadline of September 2017 for the first reporting of investors’ tax details to their home governments.
OECD Secretary-General Angel Gurría commented: “The commitment by so many countries to implement the new global standard, and to do so quickly, is another major step towards ensuring that tax cheats have nowhere left to hide”.
Swiss banking secrecy once looked like it was set in stone, but those days are well and truly over. It is time for those who use offshore banks in places like Switzerland to review why they do so and consider if there are more tax efficient places for their funds that better suit their needs. It is important to only ever use tax planning arrangements that are fully compliant here in Spain and you should seek professional advice.
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This article was written on the 03th of June, 2014.