Implementation of financial integrity strategy
International pressure on Switzerland to cooperate more closely in the fight against tax offences has increased further. Switzerland has no desire to oppose initiatives in this sphere, and is continuing to implement the OECD standard for provision of administrative assistance. Switzerland’s existing framework for providing administrative assistance will probably be reviewed at the end of 2012 as part of the second phase of the peer review of the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum). A resolution to the tax problems of the past is also being worked out with the United States. Furthermore, in its efforts to ensure fair tax mechanisms, Switzerland has put forward a credible and efficient alternative to the automatic exchange of information in tax matters. The withholding tax agreements signed with Germany and the United Kingdom are due to be ratified and should enter into force in 2013; similar agreements are likely to be concluded with other nations.
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3.2.4 United States
Switzerland has been holding talks with the United States on unresolved tax issues for more than a year. These talks relate to the US investigations into alleged infringements of US tax legislation by Swiss banks and the potential handover of client data. Under Swiss law, client data may be handed over as part of an administrative assistance procedure at federal level, but not directly by a bank. The objective of the negotiations with the US authorities is to find a solution that is compatible with Switzerland’s current legal framework. The cases of the directly affected banks are to be dealt with through requests for administrative assistance: in the case of tax fraud in accordance with the existing double taxation agreement (DTA) of 1996, and in the case of both tax fraud and tax evasion in accordance with the new – but not yet ratified – DTA of 2009. Under the existing DTA, requests for assistance are possible even without the provision of specific names or personal details, as long as an alternative form of identification is supplied. Applications on the basis of specific patterns of behaviour should also be possible under the new DTA without the provision of specific names or personal details. However a decision has yet to be made by Swiss parliament in this respect. At the same time, a global solution is being sought that will apply to the entire Swiss financial centre and thereby put the past to rest.
Another development geared to the future is the US “Foreign Account Tax Compliance Act” (FATCA), which was passed by Congress in March 2010. This legislation is designed to ensure comprehensive worldwide reporting on US taxpayers who hold bank accounts and assets with financial services providers outside the United States. The US authorities have set out a staggered timeframe for the implementation of this Act expected to apply from 1 January 2014 onward).
Given its significant international activity, particularly with the United States, Switzerland will be greatly affected by this legislation. FATCA envisages the imposition of a withholding tax of 30% on all payments of dividends, interest, sales proceeds, etc. from the United States to a foreign financial institution, irrespective of whether the financial institution in question is accepting payment on behalf of a US taxpayer, another client or indeed itself. To avoid payment of this withholding tax, a financial institution must sign an agreement with the US tax authority (the IRS) in which it accepts comprehensive reporting obligations with respect to all clients who are liable to pay US taxes. This will involve a substantial amount of administrative work. After the Federal Council instructed the FDF to initiate discussions, SIF made it clear to the US authorities during a number of different meetings that the implementation of FATCA had to take account of the concerns of the financial institutions that would be affected. Modalities for a simplified implementation of FATCA will be sounded out within the scope of talks on general financial issues.Also interesting is the dig they give at the U.S. for having the largest number of corporate vehicles for corrupt assets and banks with hidden corrupt assets. P. 18 thus says:
World Bank report: How corrupt assets are hidden A report prepared by the World Bank examined 150 cases of corruption in a selected number of countries worldwide. As part of these cases, over 800 corporate vehicles were used to conceal corrupt assets. The highest number of such corporate vehicles was found in the United States (102), while seven were based in Switzerland (see table). The report also shows that 76 of the corporate vehicles had a bank account in Switzerland, while 107 had one in the United States. The report also addressed how easy it is to set up such a corporate vehicle without naming the beneficial owner. 41 of just over a hundred trust and company service providers failed to undertake sufficient due diligence. For example, only 3 of the 27 US service providers reviewed asked for clear identity documentation. In the remaining sampled OECD countries, the figure was 9 out of 20 respondents.[I omit the table of the number of corporate vehicles per country, source is Source: World Bank, October 2011, “The Puppet Masters – How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It”]
All of this should, of course, be taken with a grain of salt. The Swiss have spun the message to protect the Swiss franchise.