World Radio Switzerland has just reported:
Switzerland has six months to improve its tax practices or it will be blacklisted by the European Commission.
That's a warning given by a European Commissioner for Taxation and Customs, Algirdas Semeta, to the print media in Switzerland.
He says if the EC's expectations aren't met some EU countries could adopt “defensive measures.”
The Commission had wanted Switzerland to agree to an automatic exchange of information, similar to the FATCA law it's signed with the United States. But Switzerland has so far been opposed to such an agreement with the EC.
The friends of tax cheating in Switzerland have long taunted Semeta but this time his threat is not hollow, and he can replicate it with Austria and Luxembourg too. The fact is that all are signing agreem,ents for automatic information exchange with the USA. And another fact is that all EU states have 'most favoured nation' status with all three. So, once they have given full automatic information exchange to the USA all other EU countries have the right to dem,and it as well. It's as simple as that.
The days of full automatic information exchange, as demanded by the Tax Justice Network for a decade, are on their way.
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Btw, the ‘most favored nation’ (MFN) clause only affects Luxembourg and Austria, but not Switzerland. That is because the MFN is part of a recent EU directive to which Switzerland, as a non-EU nation, is obviously not bound.
Ah, Mr. Rubio, but once LU and AT are forced to AEI, they won’t blockade the amended EUSTD. Then all attention will be focused on CH, without the backup of its allies, the Alpine pin will fall… In addition, Semeta just announced that if CH doesn’t fall in line, then defensive measures will be taken by some MS. This means annulling any DTA’s in force, plus not allowing any expense deducted from a corporation if it is not taxed in Switzerland, etc. The pressure on CH is set to ratchet up infinitely. The implementation of MFN is a real inflection point.
Mr Morris,
Your posting misses a few essential points with respect to Mr Semeta and his fellow Commissioners involvement and influence.
First, Mr Semeta’s “warnings” were related to corporate taxation concerns, and not to the issue of (automatic) information exchange. A number of these concerns are being addressed, and negotiations will take place to attempt to resolve the outstanding items.
Second, Mr Semeta’s warnings are little more than hot air. As you seem to understand the authority to take any “defensive measures” sits exclusively with member states, not with Mr Semeta. Mr Semata authors interesting reports (including a recent one from which you seem to have extracted some examples of possible “defensive measures”), but their conclusions are worthless without endorsement by the member states.
There is only member state with genuine leverage over Switzerland, Germany. (witness Italy’s humiliating climbdown from its own attempts to blacklist Switzerland). As I pointed out to Mr Murphy in a separate entry, there is absolutely no indication that the Merkel-Schaeuble administration is inclined to take sanctions against Switzerland, rather the opposite.
This may change after the next Federal elections, but absent a change a change of German government (odds of which are relatively long), the pressure on Switzerland is unlikely to increase much.
Respectfully, you clearly do not understand what is happening
Your opinion is now wishful thinking
Dear Mr. Rubio,
You seem to have missed how the FATCA / MFN Mutual Assistance clause sink Switzerland’s fight against AEI. As long as LU did not end their transition period in the EUSD, then Switzerland would never acquiesce to AEI. CH and LU were like tweedle dum and tweedle dee, with both saying, if the other won’t give info automatically, then I wont. That game is over.
Now that LU / AT will have to provide AEI to any EU MS, then there is no need for LU / AT to veto the EU Commission’s joint mandate to discuss with the 5 Western European nations the issue of exchange on demand and EUSD amendment. This means EUSD amendments will go ahead this year.
That’s phase 1.
Next is to pressure CH to switch to AEI for the EUSD. As you know, Switzerland’s tactic to weaken EU MS resolve on this with RUBIK has failed with Germany and France rejecting that model. It doesn’t matter about UK, Italy, Bulgaria and Greece. By the way, Germany does want AEI from Switzerland, they never gave up on that.
Phase 2.
EU will continue to pressurize CH on AEI because CH gave USA AEI via FATCA. Remember, there are more important issues at stake for CH, e.g. the replacement of bilateral agreement system with EU which has come to a dead end.
As I said, FATCA is the inflection point. If you think CH can just ignore EU Commission pressure, and write them off as powerless pawns, bare in mind how they carved the EUSD from Rubik.
Switzerland rejects the Paying Agent Upon Receipt concept but EU Commission will ensure CH adopts this. This will bring into scope all trusts and companies manged by Swiss trustees in the Bahamas, Singapore with foreign accounts, etc. Even worse for CH, Swiss banks must report payments to foreign Paying Agents Upon Receipt, e.g. report payment to Jersey tax authorities of payments made to a Jersey trust with account in CH. If the trust does not agree to having its information exchanged, then the Swiss bank must deduct 35% tax, irrespective of who the beneficial owner is, e.g. even Russians, Indians, etc.
Phase 4.
There are many more changes in the 2nd amendment of the EUSD, which will follow shortly after the first revision to EUSD is adopted, e.g. taxable entities in CH bank accounts without commercial purpose, bringing foreign branches of a head office bank in EU / CH into scope i.e. impacting Singapore, Bahamas, etc.
May I kindly recommend you don’t just look at next month, when commenting on EU Commission strategy.
Here’s a test question for you. Are Luxembourg collective investment funds below the 25% debt claim threshold in scope of the current EUSD amendment proposal?
Quite so
Thanks Mark
Mr. Rubio,
Regarding your excellent pundit forecast “This may change after the next Federal elections, but absent a change a change of German government (odds of which are relatively long), the pressure on Switzerland is unlikely to increase much.”…
As you saw Sunday, – Germany’s center-left opposition has won a wafer-thin victory over Chancellor Angela Merkel’s coalition in a major state election – dealing her a setback as she seeks a third term later this year.
So if you’re still offering long odds on Merkel’s defeat, I’d like to back up the truck and take on your generous offer as much as you’re offering.
This is the death knell for ANY German support for CH and banking secrecy.
Mr Morris,
As you point put, the victory was incredibly narrow, and the Green-SPD coalition in Niedersachsen will have to govern with a single-seat majority in the state legislature. Interestingly, polls had indicated a much more comfortable victory for the left, and Merkel’s partners performed much better than anticipated.
The general consensus in Germany is that one should not read too much about this regional ahead of the September Federal elections, which Ms Merkel is still overwhelmingly favored to win. If anything, the thight result in Niedersachsen is a (small) boost for her. In addition, Steinbrueck is not popular, and is a particularly poor campaigner.
I am not a betting person, so you will have to find another person to place your wager.
Mr Morris
This is a very interesting expose of the Commission’s strategy. Sadly, it is impossible to have any faith in the ability of the Commission to achieve any of these things, when one considers that its track record to date is one of complete failure. The Commission is at best a very marginal factor in the current cross-border tax negotiations. Even with respect to FATCA, it is simply an observer, while member state governments negotiate directly with Washington.
On Rubik, the Commission did not carve out the EUSD. All it managed to do is to exclude interest income from the scope of the agreement, but CH and the UK simply added a protocols under their respective domestic laws to circumvent the Commission’s concerns. That was a moment of complete humiliation for Mr Semeta, and should give you a good indication of the esteem in which CH holds him.
You made a very interesting statement regarding Germany’s demand for AEI from CH. The current government of Ms Merkel and Mr Schaeuble had agreed that the Rubik agreement was equivalent to AEI (The SPD’s position is different, but it is not in power). What makes you think that this position has evolved?
I do have a theory on how this is going to end: eventually CH will agree to a FACTA-like solution with its European partners, but it is likely to do so member state by member state rather than with the EU as a whole, probably starting with Germany. It will do so because the vast majority of untaxed funds will have left (at best to Singapore, at worst to Dubai or Lebanon), and the rest has become unprofitable. And CH will extract significant concessions from its partners, most notably in terms of market access.
Mr. Rubio
…eventually CH will agree to a FACTA-like solution with its European partners, but it is likely to do so member state by member state rather than with the EU as a whole, probably starting with Germany.
Mmmh, can you imagine CH agreeing AEI with one EU MS and not another?
The SPD’s position is different, but it is not in power.
The SPD + Greens will be in power. Writing is on the wall, set in concrete, sure as god made apples, etc
…vast majority of untaxed funds will have left at best to Singapore, at worst to Dubai or Lebanon
Loony tunes…. Dubai and Lebanon? I hear Somalia offering good rates. Singapore / Bahamas will be toast due to bank head offices or trusts in EU having to apply EUSD on their branches. And don’t tell me more than a handful gonna go for those excellent new Chinese banks or some no-name Canadian hole-in-the wall-bank.
Mark,
“Mmmh, can you imagine CH agreeing AEI with one EU MS and not another?”
What would be the difference between AEI and the Rubik agreements CH made with the UK and Germany? If they can do Rubik why couldn’t they do AEI?
Mr. Lehto,
It’s the exact opposite! Switzerland is trying to offload the loophole-riddled bucket of hogwash to dummies.
On the other hand, everyone demanding AEI.
Mr Morris
Nothing could prevent member states from negotiating individual FATCA-like agreements with CH. In fact, this is exactly what is happening with the actual FATCA; member states are talking directly to Washington while the EU Commisssion does what it does best, ie. nothing.
That is a bold call regarding Germany: Ms Merkel’s CDU is 16% to 18% ahead of the SPD (see http://www.wahlrecht.de/umfragen/index.htm), and her personal approval ratings are in excess of 60%, while Mr Steinbrueck is stumbling from one embarassment to the next. I am not German, but I know that Obama got re-elected with numbers that were infinitely worse.
Rubio
You’ve completely omitted the coalition with the Greens!
SPD + Greens > CDU + FDP
Richard, for automatic information exchange to work in the case of these havens ( e.g. Switz, Lux and Austria) it will still depend on other nations (e.g. the U.S., UK or any EU nation) knowing that one of their respective taxpayer/s has an account/investment in one of these secrecy jurisdictions, will it not? If the EU or the U.S. don’t know that citizen X has financial assets or investments in a Swiss bank how can they pursue the matter? Sure, there is an obligation on the Swiss bank/s to automatically advise tax authorities in the U.S. that an American citizen has money with them. But we really are relying on the bank’s honesty and ethics here are we not? Do these agreements include a penalty of some sort on the financial institution for non-reporting?
No
Automatic information exchange requires Switzerland et al to report who has an account
They have to know because of anti-money laundering rules