Switzerland Financial Community to Balance Legal Compliance and Attractiveness to Investors

On 22 February 2012 the Swiss government (Bundesrat, federal council of Switzerland) reviewed and stated its support for the discussion paper "Strategy for a Competitive Financial Community Conforming to Tax Laws". The stated goal is to continue offering favourable and competitive conditions for the financial community in Switzerland while simultaneously finding international acceptance from the investors' home countries that are concerned about their taxes.

According to this strategy, banking confidentiality is to be maintained on the one hand while abuse of the same is to be prevented on the other hand. Entering into international double taxation conventions is the proposed means of choice. A withholding tax that protects the privacy of the foreign investor and it remitted to the tax authorities in the investor's country of residence is to be specified in the conventions. The approach is to be applied to existing amounts already in Switzerland, which would therefore be legalised in case they were previously not taxable, and to new investments in compliance with tax laws thanks to the withholding tax.

Administrative and legal assistance in accordance with international standards is to be provided as well. A stricter duty of care, especially in regards to possible money laundering and the acceptance of untaxed amounts, is to be imposed on the domestic banks simultaneously. The Swiss Ministry of Finance has been instructed to present concrete implementation proposals by September 2012.

This strategy is by no means a new frontier for Switzerland. Taxation conventions have previously been negotiated with the UK and Germany. Unfortunately the problems associated with this approach are also revealed here. In view of the altered majority situation, it has become questionable whether Germany will ratify the agreement. Support for tax rates that favour capital gains is not only dwindling in Germany. How far the demands of the USA for an agreement with Switzerland will go also remains open. According to the Foreign Account Tax Compliance Act (FACTA), transparency regarding the foreign accounts of – wealthy – US citizens, in part assured by a binding and comprehensive duty of the participating banks to transfer data to the US tax authorities, is also part of the American strategy to fight tax evasion.

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