Friday, February 10, 2012

Swiss Report on International Financial and Tax Matters (2/10/12)

The Swiss Federal Department of Finance has issued its Report on International Financial and Tax Matters 2012, here.  Interesting excerpts are:
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.
* * * *
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.


  1. Interestingly Wegelin @ co is now a corporate "fugitive" whatever that means.

  2. Personally, I do not think the last part should be taken with a grain of salt. While clearly the Swiss or any country will add favourable content to its message, if one follows the banking industry woldwide (and not just from the parochial US view), the double standard of the US in Offshore tax matters is absolutely stunning. The more the issue is pushed by the Americans, and the louder they get, the more legitimate it is for the rest of the world to call out the US on its Hypocrisy. Fact is, the US is the worlds largest Offshore Tax haven. The United States, will eventually be called on it, as they should.

  3. I agree with AnonymousFeb 14, 2012 01:40 AM that the last part should not be taken with a grain of salt at all.

    Senator Carl Levin probably would as well:

    As a further example, the IRS recently proposed to implement a regulation requiring US banks to report the bank deposit interest paid to non-US account holders, so that the information could be made available to the account holder’s respective governments – somewhat like what foreign banks will have to do for the US government under FATCA.
    The Florida House delegation unanimously requested that the regulation be withdrawn:

    The arguments the delegation puts forth are same as private bankers in tax havens have been advancing for decades.

    Frankly, I find their assertion on page 2 that “ [the] proposal may be good news for high-tax governments, but it is contrary to American economic interest ” shocking – and telling. Would anyone on this otherwise excellent site like to venture a guess as to how much private banking for South American clients contributes to Florida’s economy, directly or indirectly?

    Someone pointed out to me that when the G20 wanted to publish their list of blacklisted jurisdictions, there were delays because China objected to Hongkong and Macau being mentioned on the list.

    At the end of the day it’s all about economic competition, with each nation securing as many advantages as possible for the very lucrative off-shore industry, while diminishing the advantages of its competitors.

    It’s nothing personal, it’s just big business. The man on the street, however, would probably just call it hypocrisy.


  4. how much private banking for South American clients contributes to Florida’s economy?

    Approximately 0.5 trillion = $500 billion.

    The Unites States IS considered an offshore center. It's size is between Hong Kong and Luxembourg, with approx $700 billion in offshore assets.

    Also, contrary to popular belief, few North American assets are currently in Switzerland. Most are in England and the Caribbean. I suspect that the language being English would make it easier to communicate and open accounts.

    Just like Spanish being a second language in Florida would make it easier for them to bank for South Americans.

  5. Many years ago I was in Miami walking down Brickell Avenue and vividly remember all of the luxury sedans coming and going dropping off wealthy South Americans to see their "private bankers."

    1. Maybe it is no coincidence that Florida was also UBS' US preferred location for private banking.

      Apparently all US clients had to fly there (during the Art Basel show, sponsored by UBS)

      to meet face to face with their banker, thus avoiding electronic and mail surveillance.

  6. Pictet & Cie. Bank .--- Switzerland.---- Partners in


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