Spiced meat products may make finance minister Hans Rudolf-Merz snigger in the Swiss parliament but exchanging tax information may not. A new deal has been signed with the UK which sees the traditionally secretive Swiss give ground over account holders using the country to shelter their tax.
Politicians in the United States and western Europe have used the financial crisis as leverage against those countries used by the wealthy to shelter income from tax in their home nations.
Switzerland’s shadowy banking arrangements has helped build the country’s reputation as a place where the rich can find a safe harbour from tax authorities. In many respects the country’s profile ranks alongside that of Liechtenstein as a jurisdiction where the well-off can find favour.
But if Merz has found notoriety in the UK it is for starting the process to change that reputation. Famous for once suffering an uncontrollable fit of the giggles in parliament which made him a YouTube sensation, Merz was the man doing quite serious deals on tax information, not only with the UK but also with Canada and Germany – a country which has utilised some aggressive tactics in pursuit of citizens avoiding their tax liabilities.
But the UK was the first to sign up with the Swiss. And while many point out the irony of the British doing a deal while not quite addressing the Channel Islands
role as a shelter, the point is that the Swiss are moving to improve their relationships on tax and Merz is in the vanguard.
And Merz had to move. Pressure was mounting. The authorities had recently raided branches of Credit Suisse in Germany, and the US has made much of pursuing information from the Swiss bank UBS.
So aggressive was its pursuit, in fact, that the Swiss Parliament was called to vote on whether the information should be handed over. In June it did just that as a means of avoiding accusations that it was trying to hide tax evaders.
But the experience was a painful one that brought endless negative press and much more focus on Switzerland’s banking secrecy than someone like Merz would have liked. It also placed the Alpine state in the crosshairs of the world’s biggest economy at a time when its zeal for closing down the activities of tax evaders was at its peak.
Attacked on many fronts, the Swiss had to find a new way forward – they couldn’t go on reacting to each tax crisis as it happened.
What followed has to be seen in that context. It also has to be viewed against the backdrop of European Union moves to
introduce “automatic information exchange”, on tax, a prospect held in dread by the Swiss who wish at all cost to avoid giving up the names of the account holders at its banks.
So Merz’s approach has been a series of unilateral deals with countries where the pressure could be acute. Germany believes its citizens may have up to £126bn untaxed in Swiss accounts, the British £100bn.
What happens next?
The Swiss, the Germans and the UK all head into negotiations early next year. Their problem is that this will not be a pressure-free environment. The reason being that many believe that the Germans and the British have sold out their real interests in return for a modicum of tax revenues.
The argument runs like this. In return for being able to keep the account holders anonymous the Swiss will impose a withholding tax that should raise some revenue to be paid over to their country of origin.
The most vehement detractors have called this a victory for the Swiss, aided by chancellor George Osborne, because it continues to keep account holders secret, sidesteps automatic information
exchange and, moreover, neatly ducks the principle of a sovereign state being able to tax the income of its own citizens. In this deal it looks like it will be the Swiss who tax British and German nationals.
John Christensen of the NGO Tax Justice Network has said that this is a deal in which it will be “business as usual” for tax evaders. In an interview for World Radio Switzerland he said: “What sovereign countries cannot do is say to the citizens of other countries, ‘You can come here and evade taxes and we will support you with that process’. That is an abuse of sovereignty.”
But this will be someone else’s problem. Merz has now stepped down from the Swiss government. In Berne the hope will be that his legacy will be saving Swiss banking and its traditional secrecy. Maybe that will make him giggle.
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