My sources tell me that:
The European commission has realised that the [proposed UK and German] DTAs [with Switzerland] would compromise the EU work on automatic exchange of info. Now the Commission has been in direct touch with Germany and UK regarding this issue.
Most important is that they are concerned about Switzerland now being a conduit for all black money back to the UK / Germany if assets are regularised...
So they should be. With the fundamentalist free market government of the UK (yes, I mean that fundamentalist comment — those in our government are as dangerous in their ideological blindness as those usually attributed with such description) being in my opinion at the forefront of this process of promoting bank secrecy to assist their clear objective of undermining government and taxation whilst promoting income inequality the European Commission clearly has very good cause to be concerned. In April 2009 the world agreed that closing down tax havens was fundamental to creating the transparency markets need and generating the revenues all governments are due. Now the ConDems (yes, both parties) are going out of their way to support the corruption that secrecy jurisdictions in general and Switzerland in particular promote.
This is an act of the highest international irresponsibility. I am amazed that international protest is not pouring in. Why? Well note this from Swissinfo (who I note have been reading this blog this week):
Barely two years ago Swiss banking secrecy appeared to be on the rocks with little prospect of it surviving a battering from the United States and Europe.
The impending negotiations of tax accords with Britain and Germany now appear to have lifted the pressure from the Swiss financial centre’s most prized asset. But to what extent has the threat really been lifted?
Konrad Hummler, head of Switzerland’s oldest private bank Wegelin, believes that talks with the two powerful countries — which centre on withholding tax as opposed to an automatic exchange of tax information — will leave banking secrecy intact.
“The protection of privacy through banking secrecy has been strictly separated from the issue of taxation,” he told the Tages-Anzeiger newspaper. “Banking secrecy has therefore been strengthened because it is no longer under suspicion of protecting injustice.”
That’s his story.
But as they note:
Writing on his blog this week, Richard Murphy of the watchdog group Tax Research UK accused Britain of “abandoning the fight against tax havens”.
“No indication is given as to how these accounts are to be regularised,” he went on. “Indeed, there is no prospect that they can be because the £40 billion [SFr63 billion] or so of evaded assets will not have to be declared by name by the Swiss. In that case there is no prospect of UK interest or penalties being charged.”
And Swissinfo added:
But before Swiss bankers can breathe a collective sigh of relief that their cherished secrecy has been saved, the European Union warned that the proposed deals with Germany and Britain would not be allowed to supercede EU demands for an automatic exchange of tax information.
“We have assurances from Germany and the United Kingdom that they are totally behind our aim of achieving automatic exchange of information within the EU, and of promoting as broad a system of information exchange as possible at an international level,” said Emer Traynor, spokeswoman for the EU commissioner for taxation, Algirdas Semeta.
“If there is a conflict, European law always takes precedence over bilateral agreements,” she added.
The pressure to ensure the EU delivers has increased. This is a fight with Cameron they have to win.
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Richard, I rarely agree with you, but on this occassion I have to admit that everything you have said is right. In fact, when I first saw the headlines, I thought that this cannot possibly be what the british government’s intentions are when they sign up for this.
If it is, then every other offshore centre will have to give way to Switzerland because they can no longer compete. Now, everyone who pays more than a 35% tax rate, or who doesn’t want to pay IHT on their estate can just put their money in Switzerland and it will be alright. If this deal becomes law, your work is now finished
Switzerland is not part of the EU, so whatever the Commission wants to promote within the EU (over Luxembourg’s and Austria’s dead bodies) is completely irrelevant here.
@Million Dollar Babe
Switzerland is covered by the European Union Savings Tax Directive
Get your facts right
@Richard Murphy
We all perfectly know that. Thank you.
But read carefully what the spokeswoman said: “…..they are totally behind our aim of achieving automatic exchange of information WITHIN the EU….”
She is clearly referring to internal EU issues, and NOT to the EU’s dealings third parties. Any deal on automatic exchange of information that the EU agrees among itself (which will not happen any time soon due to Luxembourg and Austria) will then be presented to the Swiss, who will decide to accept it or (more likely) not.
I am happy to get my facts right, but you should really read what you post and make sure you understand it.
@Million Dollar Babe
But Switzerland is part of the EU for these purposes – as is |Liechtenstein
Sorry – it’s you who needs to get your facts right
Richard,
Sorry, but this is not correct.
Switzerland had agreed to adhere to the terms of the first EU savings directive.
It is not bound to accept any extension of the terms of the directive or of any new directive. In fact, it could even unilaterally pull out of its obligations under the first directive, something EU member states cannot.
The fact is: since Switzerland is not a member of the EU, it is not subject to the authority of any EU institution, including the Commission.
@Million Dollar Babe
Babe, you have many of your facts straight. What you don’t appreciate is the EU political pressure on Luxembourg and Austria to acquiesce to automatic exchange of information. Those two countries belong to the EU and as such there are many other more important issues at stake than this tax matter. Luxembourg has far more to lose than to gain by sticking to its intransigence. I am aware that EU pressure will ratchet up so much that Luxembourg will agree. The first agreement they will be forced to accept is the Mutual Assistance Directive regarding automatic exchange of info on eight types of income, excluding interest. Soon after, the EU savings tax directive will be amended. In fact, the EU Commission is already busy with the 2nd review of the EU savings tax directive as they must review it every three years of operation.
Now, even if Germany and UK have agreed to withholding tax for Switzerland, the EU will continue putting pressure on Switzerland to accept automatic exchange of info via the many bilateral agreements that need to be renewed. If you think Switzerland has permanently escaped the automatic exchange bullet, then take another toke.
The Swiss demand for access to improved access for their banks to individual markets will quickly come to a tragic end. It’s an EU issue regarding access to markets, not up to individual Member States. This whole DTA will unravel over the next few years. The Germans ain’t going to get 10% of fiscal rewards they’re expecting from this agreement and the UK will get a tuppence.
Further more, I can tell you the Germans are not going to rely on the amateurish Rubik proposal put forward by the Swiss Banking Association. That’s like trusting the fox to guard the henhouse. Expect all Rubik’s loopholes to be closed including legal entities (not just non commercial) and insurance wrappers and trusts / foundations without identifiable beneficiaries. Also the two braincell idea that Swiss banks can simply move their German resident clients to their Singapore / Bahamas branch to avoid the DTA is a joke. The head office will be deemed the Paying Agent for their out of jurisdiction branches. The Swiss shot themselves in their foot on this issue. Before, the EU savings tax could not apply to Singapore branches due to exchange of info being against Singapore banking secrecy legislation… but the Swiss Head office is anonimously allowed to deduct withholding tax.
If I were you, I wouldn’t be celebrating this tax deal at all. The gnomes of Zurich are not half as clever at chess as they think they are.
@Million Dollar Babe
We’ve been through this whole issue re Guernsey recently
Not “bound” for sure
But no option either
And I live in the real world
@Mark
I agree
@Million Dollar
You are dead wrong. Switzerland has agreed to adopt any and all changes to the EU savings tax. And it can’t pull out of the EUSD. It would then lose on the other bilateral agreements. Welcome to the real world. No man is an island.. nor is Switzerland.
The issue re Guernsey created a lot of heat there. On one hand Richard Murphy has “had his time”, yet generates impassioned bile.
The scenario for Guernsey is that:
1)”investors” desire the King John/Protocol 3, rather than the “UK/EU” by proxy.
2)That Guernsey is not a booking centre.
3)That I am related to Richard Murphy.
Sharp analysis.
This blog entry is compatible in that no geographically placxed jurisdiction will defy the larger drift for long. They just cannt afford to do so. The nationalistic elements will bang their drum, but it becomes more hysterical as realities kick in. Even one of Guernsey’s most frothy polly has understood the need (whilst damning the need to hell).
Sure, these jurisdictions are being leant on. But it’s a business issue not one f sovereignty. Unless the nationalists are really corporatists?
[…] deal with the Swiss government. A deal so bad that one of my usual critics from the Isle of Man has said: Richard, I rarely agree with you, but on this occasion I have to admit that everything you have […]
@Mark
The political scenario you outline is interesting, but it is largely wishful thinking and very unlikely to play out as you describe it. The more realistic scenario is that Luxembourg and Austria will manage to retain banking secrecy and a withholding tax regime, in exchange for extending the scope of the EUSTD to other forms of income and for closing the existing loopholes. Germany’s and the UK’s agreements with Switzerland send a strong signal in their direction that 2 of the most influential EU states are willing to negotiate in this direction. Luxembourg has more bargaining leverage now than at any time in the last 10 years, and they are fully aware of it.
As for Switzerland, it has categorically NOT agreed to the sweeping changes contemplated in the second EUSTD (frankly if this were the case, ECOFIN and other entities would not have the current discussions). It can pull out of the EUSTD although, as you correctly point out, this would have serious and negative effects on the other bilateral agreements in place. It is highly unlikely that it would ever do it. The bilateral agreements themselves are NOT subject to renewal.
There is a lot of negotiation yet to take place around Rubik, and the technical points you highlight will have to be dealt with at this point. Many of the loopholes identified during EUSTD 1 will be closed.
I don’t know why the issue of Singapore is raised. In my view, these agreements are designed precisely to dis-incentivise depositors from moving assets there. The vast majority of investors do not bank in Switzerland because of tax, but because of stability and privacy. These investors will not mind paying tax, if this ensures that their fundamental right to privacy is maintained.
@Million Dollar Babe
You are back into fantasy land.
I know that neoliberals like to presume that the world is black-and-white, but it isn’t.
The reality is that Switzerland has very little long-term choice but to comply with the EU requirements – as in the end will Luxembourg and Austria, because the external pressure on these small countries would be too great, in the end, to bear.
That is precisely why the Rubik will fail in the end.
Am I missing something here? I thought the default position was that countries who were allowed to withhold tax under the EUSTD had to move over to automatic exchange by 2015. If that’s the case, then what’s the point of any separate deals by Switzerland with the UK and Germany?
I also thought that Switzerland’s participation in the EUSTD was linked to their participation in the Schengen arrangement, re. freedom of movement of EU nationals and Swiss nationals to/from Switzerland. Isn’t that what they negotiated at the time?
@Million Dollar Babe
If you think Switzerland has “categorically NOT agreed to the sweeping changes contemplated in the second EUSTD” then you’ve been visiting too many coffee shops in Amsterdam 😯
@ Mark. I can’t seem to find any info on EUSTD 2 anywhere. I’d be grateful if you could point me in the direction of where i can find out what new assets have been agreed to be included within the scope of the directive.
Thanks.
@Greg
There’s enough reading on the EU website to keep you occupied for a year.
Seek and ye shall find.
@ Mark, thanks.
@Rupert
Where did you get the 2015 year from???
The EUSD states that the three countries must switch over to automatic exchange of information only when the 5 other 3rd country parties agree to exchange information on demand. The other 5 being Switzerland, Monaco, Andorra, San Marino, Liechtenstein.
As Liechtenstein would only be deemed to agree to exchange on demand once the EU signs to the anti avoidance agreement with them. So Luxembourg are not agreeing to this anti avoidance pact so that they can say that Liechtenstein is not yet subject to exchange on Demand… and true to form, they also not agreeing on the EUSD loopholes being closed. What a piece of work they are.
Luxembourg, the scum bags, is truly despicable but they cannot continue to hold out on such an immoral stance.
Mark
I’m pretty sure that 2015 was always set as a longstop date although I’m afraid I haven’t yet had time to check it out.
Mark
I’ve now checked and you are quite right. There is no 2015 longstop. For some unknown reason I had always viewed the EUSTD as being 15% for 3 years from January 2005, 20% for 3 years from 1st January 2008 and 35% for 3 years from 1st January 2011, i.e. ending 31st December 2014. All I can think is that this might well have been the original intention before the retention option was built in.
The Isle of Man has announced that it is going to automatic exchange from January 2011 and Guernsey has undertaken to do so “between January 2011 and July 2011”. I’m not sure where Jersey have currently got to, but if Switzerland manages to get away with what it thinks it has negotiated then who knows where this is going to end up?
@Rupert
I predict the new Swiss withholding tax agreement will seriously affect all future automatic exchange of information deals.
@Mark
Mark,
I thought you said the Swiss would cave in, and these agreements would never happen.
Change of mind?
Mark
You are absolutely right – it is bound to.