Switzerland agrees to relax bank secrecy rules

By BILL BLEVINS [email protected]

Bill Blevins is the Managing Director of Blevins Franks. He has specialised in expatriate investment and tax planning for over 35 years. He has written books and gives lectures on this subject in Southern Europe and the UK

The global financial crisis is forcing governments to retaliate by clamping down on banks and Offshore Financial Centres (OFCs).

There is a renewed drive to make OFCs comply with transparency so that money cannot be hidden from tax authorities, and for banks which use OFCs to set aside higher capital to reduce the risk on the financial system.

The international assault on tax havens has been going on for over a decade, but the recent intensification has led to a significant breakthrough. A number of key OFCs have agreed to embrace the standards for tax cooperation and exchange of information set by the Organisation for Economic Co-operation and Development (OECD), culminating with Switzerland historically agreeing to relax its bank secrecy laws.

Governments have been concerned for some time that their tax revenues are being seriously depleted by offshore tax evasion, and it has become a much bigger problem now that treasuries are having to fork out massive sums to prop up their economies.  Governments have been increasing their efforts further to recoup tax lost through evasion and to bring offshore jurisdictions into line for the future.

Given the scale of the bank bail outs and stimulus plans, it is inevitable that taxes will be increased when it is practical to do so to pay off the national debts.

UK Prime Minister, Gordon Brown, has been leading an initiative to put the matter of OFC legislation on the agenda at the G20 summit, to be hosted by the UK in London on April 2.  France and Germany announced their support and proposed that banks should be forced to earmark capital specifically to offset risk to the financial system, as well as to provide fiscal regulators with information on their dealings with offshore jurisdictions.  They called on the G20 summit to approve new blacklists of jurisdictions which do not co-operate with other countries.

All this appears to have prompted a number of OFCs to capitulate to international demands. In a landmark move, on Friday March 13, the Swiss government announced that it will start to share more information on suspected tax evaders with other countries.

Swiss president and finance minister Hans-Rudolf Merz, told a news conference:  “Banking secrecy does not protect crimes. International cooperation on taxes has become more important given the globalisation of financial markets and in particular against the backdrop of the financial crisis”.

Switzerland is abolishing the strict distinction between tax fraud (a crime there) and tax evasion (until now just a civil offence), making it easier for foreign tax authorities to receive information from the Swiss authorities.

Switzerland’s announcement came after other centres, including Liechtenstein, Andorra, Jersey, Isle of Man, Singapore and Hong Kong, recently bowed to international pressure and announced measures to improve tax transparency.

Gordon Brown described Switzerland’s announcement as “the beginning of the end of tax havens”.

In the UK a new Offshore Disclosure Facility is in the pipeline for 2009 and HM Revenue & Customs (HMRC) is expected to write to at least 500 banks and financial institutions requesting details of offshore accounts held by UK taxpayers. Experts also believe that HMRC is preparing to send tax inspectors to question officials in tax havens following discussions at the G20 meeting.

In the US, a second Stop Tax Haven Abuse Act (STHAA) has been launched by anti tax haven senator Carl Levin. Levin said that tax havens are engaged in “economic warfare” against the US and they undermine the integrity of the US tax system. In 2007 proposals for a previous STHAA failed to become law but new US president, Barack Obama, supported the first proposals and has already pledged to crack down on tax havens.

Levin commented: “President Obama’s support for the Stop Tax Haven Abuse Act, as announced by treasury secretary Geithner, is very welcome news and greatly improves the chances of an offshore tax bill becoming law this year. It also sends a strong signal to tax havens that this administration is not going to tolerate the kind of offshore tax abuses that have been draining 100 billion US dollars a year from the US treasury and that, as a result, offload the tax burden on to the backs of honest taxpayers.”

Calculating the cost of unpaid tax

An estimated 13 trillion US dollars held offshore is escaping tax, with governments losing around 255 billion dollars revenue a year from it.

The UK Trades Union Congress (TUC) claims that offshore avoidance is costing the UK four billion pounds Sterling a year.  It wants the Savings Tax Directive to be reformed and for accounts and trusts registered in tax havens to be put on public record and for the withholding tax option to be withdrawn so that everyone pays the full amount of tax due to their country of residence.  

Barber said: “With the tax take falling because of the recession, there can be no better time to get tough with the super rich, so many of whom did so much to throw the world into recession.”

Rather than using offshore bank accounts which are under scrutiny, assets can be placed in legitimate tax saving structures, which could protect against both the OFC clampdown and future tax increases. An authorised and regulated firm like Blevins Franks Financial Management Limited can give professional advice on the issue.

To keep in touch with the latest developments in the offshore world, check out the latest news on the Blevins Franks website by clicking the link on the right of this page.