Tax Research UK

CS sees withholding tax on Germans’ accounts-paper | Reuters .

Reuters report that:

The chief of Credit Suisse’s  private bank is proposing a withholding tax on bank accounts held by Germans in Switzerland to help ease strained ties with Berlin, a newspaper reported on Monday.

I have already discussed the absurdity of this idea but the Swiss are clearly still hanging on to it.

But what’s really funny is the justification for it:

Such a withholding tax could mean outflows in the short term but would not greatly harm his bank’s fortunes, Walter Berchtold told Germany’s Handelsblatt.

“Long-term I’m very optimistic, because our business doesn’t rely on untaxed funds,” he said.

Well that must make it the only bank in Switzerland that doesn’t since even Swiss officials seem happy to accept that half all money in the place is illicit.

It really is time the Swiss accepted that those facilitating fraud don’t set agendas and that the whole Swiss economy is structured for just that purpose.

Richard Murphy Banking, Switzerland, Tax evasion

The most astonishing document has been published by a body called Swiss Banking, who appear to represent the collective body of bankers in that country. Dated in December 2009 it’s only just come to my attention.

What is astonishing about it is the extraordinary arrogance of their proposals which will, they think, let them keep Swiss banking secrecy intact. To do so they are proposing a withholding tax in Switzerland on interest income, dividends, payments from funds, on capital gains and wealth. The object they say is:

to ensure that the assets deposited by foreign-domiciled clients with Swiss banks are compliant with the income tax laws of their relevant tax domicile. At the same time the purpose is to protect the privacy of these clients.

Switzerland offers to collect the flat rate tax on income paid on balances of foreign domiciled clients for countries that wish to avail themselves of the service. This tax is deducted by the paying agent (the bank) and credited to the tax authorities of the client’s tax domicile.

In return, Switzerland demands undiscriminated access to the financial markets of these countries under prevailing national law.

This needs some serious unpacking.

First: let’s be quite clear about the taxes that are proposed. They are flat taxes, about which the Swiss banks are eulogistic in their praise. Most of the rest of the world is not so enthusiastic, of course. The reality is that flat taxes are deeply regressive, and highly avoidable, as my own work on them has shown. As they say:

The model is generally also open to parties with progressive rates of tax, but on condition that a uniform rate is applied. A progressive taxation system would be technically virtually impossible to implement.

Second, let’s be clear that the Swiss determine the rate according to this model. They say it would coincide with the EU withholding rate – which will be 35% soon – but there’s no guarantee of that.

Third, they demand that:

The payment of the flat rate tax by the client is definitive, meaning that the client’s assets held with a bank in Switzerland have then been definitively assessed. The client no longer needs to declare the assets concerned in his/her/its annual tax return. The client receives (on request) an annual tax statement from the paying agent showing the tax amounts deducted.

There are massive further technical problems inherent in the proposals – which are naive on these technical issues to a degree that is quite extraordinary, but let’s stop at this point and realise what the Swiss bankers are demanding. It is this:

1. That the Swiss be allowed to set the prevailing current flat tax rate on all sorts of investment income for any state that enters into an arrangement of the proposed sort with Switzerland.
2. That progressive taxation on investment income be banned in those partner states as a consequence because they would be unenforceable. That would be because Switzerland could always undermine higher rates and there would be no penalty on anyone making use of Swiss banks rather than local banks and as such local banking would collapse if there were to be higher rate or progressive taxes in any state entering into such a deal with Switzerland.
3. That any state entering into such an agreement with Switzerland must forego its own right to set its own tax rates henceforth – not least because Switzerland wants to apply this tax rate to some forms of company and other entities as well.
4. That any state entering into such an agreement forego its right to demand tax returns that are full, complete and accurate from its residents.
5. That any state entering into such a deal forego the right to ask its taxpaying population about why they have funds in Switzerland – and whether the capital transferred there should have been taxable in the home jurisdiction or not – so foregoing all prospect of ever making investigation of tax evasion.

I have to assume that those proposing this arrangement are aware of what it means. It would be patronising to thin otherwise. But in that case there are three things to say.

First, it’s hard to take their technical competence seriously. They clearly do not understand the complexity of the issues they are addressing – which the EU has been tackling for many years with regard to the European Union Savings Tax Directive and which the Swiss seem to just brush aside.

Second, the staggering implicit assault on the tax sovereignty of other states within these proposals is breathtakingly naive and politically brazen at the same time.

Third, it is astonishing that in all this the obvious intention is to dismiss the issue of banking secrecy as a simple one of non-taxation of income arising in Switzerland. The key issue of how the funds get there in the first place is completely swept aside – it is demanded that states ignore this issue.

I have said time and again that secrecy jurisdictions are profoundly political constructs. This is inherent in my definition of them, which is:

Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.

This is an almost perfect example of that definition being seen in practice.

We could just dismiss it. The reality is though that these people are serious: they really think this should be done.

That’s why they’re a threat to democracy itself. When bankers use the abusive legislation of a state they have captured to seek to undermine the right of people in other states to set their own tax rates, determine their own fortunes and determine their own criminal justice systems we can more readily appreciate the scale of their assault on society as whole, which is why we have to fight back.

And don’t think these are fringe organisations. The members of the organisation promoting this include UBS, Credit Suisse, Barclays, HSBC, Lloyds and RBS.

Be worried. Be very worried.  These people really do want to rule the world – and that’s no joke.

Richard Murphy Banking, Corruption, Ethics, Switzerland, Tax evasion

Switzerland has lost out on the lucrative tax evasion market by giving up banking secrecy too quickly, a writer says. - swissinfo.

The warped logic of the private banking industry is revealed in this piece, from SwissInfo:

Switzerland should be doing more to fight its corner in the battle for a piece of the shifting but highly lucrative tax evasion market, an expert tells swissinfo.ch.

With the market now worth an estimated $13.7 trillion (SFr13 trillion), Swiss financial journalist Myret Zaki asks in her new book, Banking Secrecy is Dead, Long Live Tax Evasion (Le secret bancaire est mort, vive l’évasion fiscale), who is really benefitting most from tax evasion.
Her conclusion: British jurisdictions, where trusts are thriving. These secretive organisations are, in Zaki’s words, the “princely tools” of tax avoidance.

The non-governmental organisation Tax Justice Network valued the tax evasion market at $11.5 trillion in 2005, and at its current worth it comes in just under the United States’ Gross Domestic Product.

Activity in the Swiss financial centre is marginal by comparison. In 2008 it managed around SFr2.2 trillion in cross-border private assets, around half of which would have been undeclared.

Zaki argues that Switzerland should resist moralistic anti-banking secrecy arguments put forward by neighbouring countries and demand equal treatment. It should not give up too much, too quickly in the face of international pressure, she says.

Odd to find data I helped prepare being used as an argument for the supply of more tax evasion, but let’s leave that aside and note the important issues. First, an acknowledgement that half of all Swiss banking funds are illicit. Second, a candid acknowledgement that banks know this and want to profit from it.

This is the madness of libertarian economics. We won’t resolve the issue until banking, and more besides, is radically reformed.

Richard Murphy Switzerland, Tax evasion

Tax offences = money laundering.

As headlines go the above, from the Straits Times in Singapore is pretty good. And spot on.

As it reports:

THE OECD is planning to list tax offences as a form of money laundering, a move that could hit Switzerland hard, Swiss newspaper SonntagsZeitung reported on Sunday.

Without citing its sources, the newspaper said that if tax offences were reclassified in money laundering, lawyers, tax advisors, accountants and bankers who are implicated in such offences could get up to three years in jail.

About time too.  It’s another step the Tax Justice Network have been calling for.

Richard Murphy OECD, Switzerland, Tax evasion

Swiss minister questions tax evasion rule | Reuters .

Switzerland’s justice minister questioned on Sunday whether tax evasion should continue to be treated as a misdemeanour rather than a crime, in another blow to the country’s cherished banking secrecy.

Switzerland has already abandoned the distinction between tax evasion — failing to declare your income or wealth to the taxman — and tax fraud — deliberately misleading the revenue — for foreigners investing money in the country.

More signs of progress.

Yes I know it will need a referendum to get through - but without leaders willing to make the case for even putting the question to a vote that can’t happen.

So this is real progress.

Richard Murphy Switzerland

Reuters have reported:

A U.S. client of London-based HSBC pleaded guilty to conspiracy in connection with assets stashed abroad to evade taxes, part of a widening crackdown on foreign banks and their customers.

The plea is the first among the U.S. government’s recent tax prosecutions that involves a major bank other than Swiss banking giant UBS AG.

HSBC was not named in the court documents, which referred to "one of the largest international banks in the world" … "headquartered in England." But a person familiar with the matter identified the bank as HSBC.

Andrew Silva, of Sterling, Virginia, a doctor, pleaded guilty in U.S. District Court for the Eastern District of Virginia to conspiracy to defraud the U.S. government by hiding about $250,000 in an account at a Swiss unit of HSBC.

The court filings listed the defendant’s banker as an unindicted co-conspirator. HSBC declined to comment.

Silva was notified in August of 2009 that the bank would stop holding his account. He then attempted to send the money back through the mail in increments of less than $10,000 to evade reporting rules, according to the court documents.

I’ve read those court documents. Reuters are report to report that they say:

Court documents said a Zurich attorney and the Swiss banker warned Silva he could not use wire transfers to get his money out of Switzerland, for fear of leaving a paper trail. He was to deal only in cash and was given individually wrapped "bricks" to send the money back in chunks of $100 bills.

One such brick supplied by HSBC (if this widely believed report is true) had $100,000 in it in new, sequentially numbered dollar bills.

Now there is no way on earth a bank would have done this but to assist money laundering.

And if HSBC did this in Switzerland then its worth noting that the head of the HSBC private bank in that country is this man:

That’s the Rev Stephen Green of the Church of England, also Chair of HSBC, formerly CEO of HSBC and also the current chair of the British Bankers’ Association.

This money laundering will, if the HSBC connection is confirmed, have taken place on his watch. He can’t claim it’s not his responsibility. It’s the board’s job to ensure controls are in place to stop this sort of thing happening – in 2009. But it did happen – that’s beyond doubt. And if it was in HSBC he was there.

Will he resign if the HSBC connection is confirmed? Will he be indicted? Will he be extradited?

If not, why not? Surely if the HSBC connection is true there are charges for him to answer? I do not pre-judge guilt, but isn’t it right and proper that bankers, paid millions for their oversight, are held accountable for the money laundering their banks facilitate? Doesn’t that mean he should, if his bank was involved, have his day in court?

And if not, why not?

Richard Murphy Banking, Switzerland, Tax evasion

FT.com / Columnists / European View - Greek crisis proves Switzerland is still a safe haven.

In retaliation to the German government’s uninhibited use of stolen records from Swiss banks to catch German tax cheats, Alfred Heer, an MP and member of the hard rightwing Swiss People’s Party, is proposing introducing laws forcing banks to disclose the names of German politicians, public officials and judges with undisclosed Swiss bank accounts.

I welcome the move: it clearly signals the end of banking secrecy. I’m not sure that’s what the Swiss right intend - but if they want to give us what we want, we’ll take it.

Richard Murphy Switzerland

AFP: Swiss still back bank secrecy: poll.

According to news reports:

A majority of Swiss people remain in favour of retaining the country’s long-cherished tradition of bank secrecy despite growing international pressure for greater transparency, a poll showed Sunday.

“The Swiss are not ready to give up their banking secrecy,” the Matin Dimanche newspaper said as it published a survey showing 62 percent opposed to any change.

Some 55 percent of those polled by Matin Dimanche said they opposed the automatic exchange of information about foreign account holders for tax purposes.

I think that’s astonishing.

45% agree to automatic information exchange : fantastic! I’d say hat’s pretty incredible right now given the speed at which change has been taking place.

The conclusion on the direction of travel is obvious: given time the Swiss will give this up.

Richard Murphy Banking, Secrecy jurisdictions, Switzerland

The Swiss French-language daily Le Matin is carrying an interview with Myret Zaki, author of a new book titled "Swiss Banking Secrecy is Dead: Long Live Tax Evasion!" (French only)

Setting aside the chauvinistic and insular tone, there are several interesting issues raised in the article that we’d draw your attention to.

Firstly, Ms Zaki is right to complain that the war on banking secrecy is uneven because nothing is being done about trusts. As we have observed, time and again, trusts are a major building block used in the construction of sophisticated tax evasion structures, and, of course, many other types of crimes hide behind the secrecy they offer. To tackle banking secrecy without also tackling trusts, foundations, shell companies, and so on, is incoherent and places Anglo-American secrecy jurisdictions at a distinct advantage. From where we sit, in London, it seems quite understandable when people in Zurich, Vienna and the Grand Duchy, put two and two together and arrive at a plot by the Americans and British to assert their dominance.

Second, we’re intrigued by Ms Zaki’s estimate of the global market for tax evading capital. In 2005 we estimated the scale of this market at USD11,500 billion, and rising fast. In her book, Ms Zaki estimates the market at USD13,500 billion. We’d like to know more about the basis of this estimate, but its sounds broadly plausible and amplifies our concerns that the tide still hasn’t turned in the battle against illicit financial flows and tax evasion.

Third, asked to comment on the recent suggestion by Swiss Finance Minister Hans-Rudolf Merz that Switzerland should consider moving towards automatic information exchange with the EU countries, Ms Zaki baulks and describes this as a step too far. Au contraire: this is long overdue, and further delays will simply magnify concern that Swiss banks are engaged in supporting tax evasion across Europe and beyond the continent’s frontiers.

Implicit throughout the interview is the idea that Swiss banks can only compete in the global markets on the basis of the advantage that banking secrecy laws provide. In other words, without the provision of secrecy services Swiss banks lack a competitive edge. They therefore depend for their survival on their usefulness to tax evaders.

Ms Zaki reflects an important strand of thinking in Switzerland and similar secrecy jurisdictions. But rather than defending the indefensible and seeking to protect a totally unsatisfactory status quo, she - and others who think like her - should be pushing the Swiss government to use its powerful diplomatic weight, not least with the OECD and the United Nations Tax Committee, to push for measures requiring full transparency of trusts, shell companies and all the other devices used by the secrecy jurisdictions operating under the wings of the UK and USA. And yes, to also make automatic information exchange the global standard for cooperation. This is only coherent way forward.

Hat tip: The above is by John Christensen of Tax Justice Network, reproduced with permission as I wholeheartedly agree with it.

Richard Murphy Switzerland, Trusts

FT.com / Lex / Financial services & property - UBS.

UBS has announced its fourth quarter results:

[O]utflows from the group’s wealth management and Swiss banking operations nearly doubled to SFr33bn compared to the previous quarter, and SFr12bn leaked from its US wealth business.

Those leaks are having the desired result.

Richard Murphy Switzerland