Why is Switzerland Cleaning Up its Tax Haven Status?

Ever since the American tax authorities began a concerted crackdown on US citizens’ banking activities abroad in an effort to bring all wealth back onshore, heavy emphasis has been placed on Switzerland sorting itself out as a tax haven! Traditionally the one place in the world where everyone knows that banking secrecy is assured, Switzerland has inadvertently developed itself a negative reputation for facilitating tax avoidance.

UBS was the first bank to be accused of assisting clients to avoid tax – by the Americans. And since then, other institutions have been investigated, targeted and accused of enabling the non-tax compliant activity of clients. Employees of Swiss banks have allegedly sold off secrets about account holders, and now the German and French authorities are sifting through the records they’ve acquired looking for proof that some of their citizens have been using Swiss banks to evade and avoid tax.

However, significant change is now afoot in Switzerland, with one commentator stating: “We are in the midst of a transformational period both culturally and operationally. Tax-compliant wealth management will become the product in Switzerland, not bank secrecy and a tax haven.” So why is Switzerland cleaning up its tax haven status? Because it has to or because it can see the benefits of doing so?

There are those who are convinced that Switzerland has no choice but to bring about massive reform – after all, it has been hit from multiple angles by multiple authorities and bodies from multiple nations all accusing it of allowing non-tax compliant behaviour. Such a global and sustained attack cannot be ignored because it erodes the legitimacy of Switzerland as a place to do business and undermines the nation’s entire economy. So, perhaps it is a case that Switzerland has to clean up its act?

However, if you speak to those within the banks, they state that they are the ones taking the initiatives, and that they are tired of waiting for formal legislation to be created and brought in to regulate their behaviour. UBS is apparently forging the way when it comes to foreign tax compliance – despite the fact it has resulted in the bank losing some clients and some significant financial deposits. In explaining why the bank is taking the lead, Markus Diethelm the bank’s general counsel stated: “We have to act and cannot just wait for a political solution.”

Therefore, conceivably, the reason why Switzerland is cleaning up its act is in part because so much damage has been done to its reputation that changes are required, and in part because the changes can and will have a positive effect on the nation’s business and economic environment. The world needs a centre for tax compliant wealth management expertise – the world does not need the stress of another ‘dodgy’ tax haven.

Switzerland may have been backed into a corner and forced to make these choices and these changes – but the fact that banks are now pushing hard on the ‘know your customer’ due diligence front and working together to create legislation harmonisation is positive. Whilst banking secrecy is still high on the agenda of the institutions within Switzerland, they want to extend this right only to those clients who can prove that they are tax compliant.

It has certainly not been the path of least resistance for the jurisdiction to take – proven by the fact that UBS alone has witnessed clients withdrawing hundreds of billions of Swiss francs and taking their business elsewhere. However, if Switzerland wants to retain its status as a neutral global financial and business powerhouse, it needs to have develop this far ‘cleaner’ reputation.

Offshore Pro Group

British Offshore Tax Haven Update

The UK has a number of tax havens associated with it – from Jersey and Guernsey in the Channel Islands to the Isle of Man and even Gibraltar. All are jurisdictions closely associated with mainland Britain, but which have a certain autonomous status allowing them to make their own rules when it comes to the likes of taxation for example.

In the past these particular British offshore tax havens have been among the most well respected in the world within the financial services industry because of the degree of regulation in place protecting investors’ assets etc. However, the collapse of Kaupthing Singer and Friedlander in the Isle of Man really undermined British tax havens in general, and called into question the scope of investor protection schemes and the degree of regulation in place too.

As a result of this fact, combined with elements such as the EU Savings Tax Directive and the global crackdown on tax evasion, all tax havens around the world have been forced to reassess their position and how they handle the management and protection of invested assets on their shores. Most recently this has led to significant changes in the Isle of Man and Gibraltar. Here we present a British offshore tax haven update so you can determine where your money will be best invested and protected.

Looking at Gibraltar first, it has been undergoing a 14 year long series of changes to its taxation legislation to make the transition from tax haven to European financial services centre, and according to authorities there, it is on track for completion of this transition in due course. Among final changes being made are the reduction of corporation taxation from 22% to 10%, and the abolition of the tax-exempt company structure.

The changes within the jurisdiction have led to a significant number of companies relocating away from Gibraltar over the past few years, as they feared the scope of the changes and how they would affect their operations. However, the purpose of the changes is clear, Gibraltar wants to be respected as a financial services centre of repute rather than a tax haven with a ‘dodgy’ reputation!

Next let’s examine the Isle of Man – they have responded to the EU Savings Tax Directive by agreeing that from next year all affected individuals will be subject to the automatic exchange of information rules of the Directive, rather than the previously optional withholding tax option. The automatic exchange of information was the ultimate aim of the Directive of course, and in order to become better respected and to lose their tax haven status, the Isle of Man have complied with this requirement earlier than some expected it to.

There are still a few issues in place that hamper the Isle of Man in its progress towards achieving the position of respected financial services centre in Europe however, such as its position on corporate taxation. Certain company structures and businesses receive preferential rates at the moment – and this is a subject under scrutiny and facing debate.

Finally, an extension of the scope and remit of the EU Savings Tax Directive is currently under debate in Europe – we will of course update you as and when changes are announced. However, as it stands, there are solutions available – such as portfolio bonds for example – that can shield and protect some investors from the scope of the current Directive. If you would like to know more based on your own personal position, feel free to get in touch and we will find a wealth management adviser in your area who can advise you.

Offshore Pro Group