Final Nail In The Coffin Of Banking Secrecy by Samuel Jaberg, swissinfo.ch
With international banking secrecy on the verge of being wiped out, pressure is mounting to give Swiss tax authorities the power to force banks to hand over data in cases of suspected tax evasion by Swiss citizens.
Although the government has bowed to international pressure and committed to the automatic exchange of information with foreign tax authorities from 2017, the Swiss still have the option of keeping their bank account information secret from the Swiss tax office.
“Foreign tax authorities can access any and all information concerning their citizens from Swiss tax authorities, while these same authorities remain bound and gagged in the face of their own tax evaders,” says Jean-Christian Lambelet, professor emeritus of economics at the University of Lausanne. “It’s obvious that this two-speed system is not tenable.”
Lambelet’s opinion is widely shared by banking and finance experts canvassed by swissinfo.ch.
“It’s just a question of time. Banking secrecy is obsolete, it wronged us. To keep it uniquely for the Swiss would send the wrong signal to the rest of the world,” says finance consultant Daniel Spitz.
Aware of the problem, finance minister Eveline Widmer-Schlumpf has been trying since 2010 to inject more transparency into Switzerland’s taxation system. Notably, criminal tax law has been revised to allow for severe penalties for tax offences, including for tax evasion – defined in Switzerland as “forgetting” to declare revenues or fortunes.
Convincing the Swiss
Chasing down tax evaders would enable the government to compensate in part for lost revenue due to the Corporate Tax Reform III that will end tax privileges for foreign multinationals.
For the cantons, a number of which are experiencing budget difficulties, chasing tax dodgers could deliver a much-needed boost to the state finances.
“It’s essential that the tax office is given more powers so that it can investigate suspected cases of fraud,” says Georges Godel, finance minister for canton Fribourg.
But resistance is fierce. Having received a drubbing during the consultation process, the government has already backed down on some key issues. The final proposal, which will be delivered at the end of 2015, will not authorise the cantons to gain access easily to the banking data of people suspected of hiding their revenue.
Particularly attached to a tradition that is almost 100 years old, the Swiss view with a certain alarm the profound changes that seek to turn their relations with the authorities upside down.
“The angle of attack used by the finance department – equal treatment between cantonal and international tax authorities – will not be enough to convince the Swiss,” says Yves Noël, professor of tax law at the University of Lausanne. “If a vote were held today, banking secrecy would be maintained.”
But it would seem that the Swiss are resigning themselves to a development that now seems inevitable. In 2011, a study by the Swiss Bankers Association found 73% of Swiss were in favour of preserving banking secrecy, but that proportion dropped to 54% in 2013, according to a new poll published by the magazine Bilan.
“Save tax dodgers” initiative
Those keen to hold on to banking secrecy have understood the need to act quickly. In autumn, a committee of parliamentarians from the right successfully lodged an initiative aimed at anchoring banking secrecy in the constitution.
“It’s a save-tax-dodgers initiative which is aimed uniquely at protecting the billions of Swiss francs which are hidden from tax authorities by dishonest Swiss taxpayers,” deplores former Ticino prosecutor Paolo Bernasconi, who sweeps aside as a myth the high tax morality that is often attributed to Swiss citizens.
For Yves Noël, the solution will not be found by embedding banking secrecy in the constitution, nor by its total abolition, but in a much broader debate.
“We are one of the last countries left to tax fortunes and it is the principal reason that entices people to hide their money from tax authorities. Would it not be better to tax stock market revenues?” he wonders.
“Another central question: do we only want to lift banking secrecy in the case of tax investigations, or should we also agree that the banks send all account information, including such things as pay slips, directly to tax authorities?”
But while the public debate on the end of banking secrecy is far from over, it is already producing its first results. More and more citizens are regularising their affairs with the tax office, as revealed by this documentary by Swiss Public Television, RTS:
Financial advisers and lawyers have noticed a rise in enquiries from concerned Swiss citizens over the past three years.
“It is mostly foreign residents who seek our advice on regularising their past affairs. But more and more Swiss are also taking these steps, especially when they want to use the money to purchase a property or resolve their situation before a succession,” says Spitz.
Noël, who also acts as a tax lawyer, has noticed a change as well.
“It is mostly retirees who are convinced that banking secrecy will be abolished and who want to get in ahead of the game. They mostly contact us after having read articles in the press, but also sometimes under pressure from their bank which is pushing them to normalise their situation,” he Noël.
Noël especially sees the “big fish” taking steps, those with non-declared revenues of between CHF500,000 ($511,200) and several tens of millions of francs – sums which are difficult to use without attracting the notice of tax authorities.
In 2010, the government set up a partial amnesty which allows each citizen, once in their lifetime, to spontaneously declare previously undeclared revenues. The taxpayer submits to tax adjustment based on their real wealth and income over the previous ten years, while their heirs are only taxed retroactively on three years.
For his part, Spitz encourages his clients to collaborate with tax authorities.
“Better to use the current tool, which does not penalise you too hard, than to live with the Sword of Damocles over your head,” he says.
“Still, there are many who hesitate to declare because they are put off by the amount of back tax to pay, which generally represents 20-30% of the hidden estate.”
Since 2010, the tax amnesty put in place in canton Jura has revealed fortunes worth CHF406 million, cantonal finance minister Charles Juillard recently told Swiss Public Radio, RTS.
In five years, the amnesty has generated an additional CHF34 million in taxes – an exceptional sum in a canton of just 70,000 inhabitants where the GDP per capita is one of the lowest in the country, but which could represent just the tip of the iceberg.
Nationally, there are no reliable estimations of the sums hidden from the authorities. Bern parliamentarian Margret Kiener Nellen estimates tax evasion to be worth CHF18 billion a year. The most recent national amnesty, which occurred in 1969, revealed non-declared fortunes worth CHF11.5 billion.
Fraud v evasion
Like banking secrecy in other countries, the Swiss system did not protect against tax fraud but it did protect against tax evasion.
According to Swiss law, a person who defrauds is a person who acts in a manner designed to hide money from authorities, by falsifying documents, for example. However, a person who evades tax “forgets” to declare all or some of his/her revenue or fortune.
Tax evasion is certainly banned in Switzerland and can lead to heavy fines, but banking secrecy prevents banks from providing data to authorities in suspected cases of tax evasion.
The secrecy is protected by the 1934 law governing banks and violating it is punishable by prison. This subtle distinction was abolished for foreign clients of Swiss banks in 2009.
By Samuel Jaberg, swissinfo.ch
(Translated from French by Sophie Douez)