A Swiss speciality
Helping rich individuals to evade tax payment is the Swiss finance markets’ real speciality.
Switzerland is the world leader in “offshore private banking” – private banking outside the clients’ country of residence. Swiss banks, or rather increasingly branches of foreign banks in Switzerland, manage about a third of the wealth in this bank sector worldwide. This is more than 2000 billion francs, with a yearly growth rate estimated at 6 to 6.5 percent.

«How fortunate that no-one knows..»
What share of the foreign private wealth in Switzerland was never taxed in its country of origin?
A French parliamentary delegation report (the Montebourg report) quotes Geneva bankiers and estimates that 90 percent of foreign capital is untaxed. The Deutsche Bank assumes at least 70 percent. Swiss sources on this question are even scarcer. Victor Füglister, former acting managing director of the Swiss Bankers Association answered to the question “How much money smuggled past tax authorities lies in Swiss bank accounts?” with the answer, “I cannot answer that question, there are no statistics available”. “But it must be a significant share of the private capital?” “It could be a quite big share, yes.”

The banking secrecy plays no role
The banking secrecy is not the reason why Switzerland is so attractive for tax evasion. The Swiss financial lobby and politicians like to emphasise the banking secrecy in order to distract from the banks’ role in assisting tax evasion. The crucial factor for foreign tax evaders is the Swiss legal peculiarity in differentiating between tax fraud and tax evasion.

The banking secrecy primarily protects the clients’ private sphere, curious business partners or investigating journalists should rightly not have any access to his or her financial situation. But the Swiss banking secrecy has not been absolute for some time now. It is revoked when money laundering, insider trading or corruption is suspected, in the search for fortunes stolen by dictators/politicians from their countries, and when terrorist financing is suspected. The obligation of banks to provide information to tax authorities could be legally defined without having to abolish “banking secrecy”.

The Swiss peculiarity
The real reason why foreign tax evaders invest their money in Switzerland is the unique Swiss differentiation between tax evasion and tax fraud. Tax evasion is not a crime, only tax fraud with falsified documents carries a criminal punishment.
This legal division has consequences. It also applies to legal and regulatory cooperation – that means that Switzerland only assists other countries to investigate when an act is considered a crime in Switzerland. In Swiss law on international legal assistance tax evasion is explicitly excluded. Without legal and regulatory assistance thanks to the separation of tax evasion and tax fraud, foreign tax evaders are safe here.

Who pays the cost?
European countries are the first losers to Switzerland’s’ assistance to tax evasion. The Banca d’Italia estimates that 500 billion Euros are moved out of Italy untaxed. When Italy recently carried out a tax amnesty, almost 60 percent of the returned money came from Switzerland. If the money that was not returned is distributed similarly, then around 270 billion Euros from Italy still remain in Swiss bank accounts. In January 2003 the German finance ministry learned that the German tax evasion money invested in Swiss, Liechtenstein and Luxembourg bank accounts was estimated at 450 to 550 billion Euros. This is equivalent to a quarter of Germany’s gross national product.

Unsatisfactory compromise
The EU has tried for a long time to harmonise its taxation of capital, based on the mutual exchange of information. In order to prevent even more money draining untaxed into Switzerland, the EU negotiated with Switzerland (as well as with the USA and several tax havens) about participation in this information exchange. With support from Luxembourg, Belgium and Austria from inside the EU, Switzerland managed to obtain an agreement whereby it collects a source tax on the interest gained by EU citizens’ bank accounts. The tax rate will increase from 11 percent in the year 2005 to 35 percent in 2011. Three quarters of this money kept back from interest payments goes to the country of origin, the rest is kept by Switzerland.

This arrangement, despite the Swiss governments’ assurances, is not equivalent to the information exchange within the EU. The taxed amounts remain unknown to the tax authorities and cannot be taxed. The income loss for EU countries is still significant. At a 4 to 5 percent interest rate and a tax rate of 26.25 percent (the country of origins’ share from 2011), the tax income is only equivalent to around 1 percent of the originally invested capital. Moreover, Swiss bankiers can arrange the investments in such a way that they do not qualify for the tax at all.

Grave consequences for the South
Equally serious, but even more difficult to estimate, are developing country’s losses to tax evasion by their rich elites. The British NGO Oxfam estimates that developing countries lose 15 billion dollars a year just from lost tax income from interest on this wealth, without considering tax on the capital itself. A third of the private income invested outside the home country worldwide is in Switzerland. It can be assumed that Switzerland has a similar share of the investments that come from the South. This would mean that developing countries lose at least 5 billion dollars each year in lost taxes from wealth managed in Switzerland – five times more money than the whole Swiss development aid budget.

No school without taxes
If the countries of the South had higher tax incomes, they could pay for better public services, for instance better schools and hospitals. A UNDP (UN development programme) study in 1997 showed that all industrialized countries collect about 26 percent of their gross national product (GNP) in taxes. Out of this they financed education and health services to a value of 12 percent of their GNP. In poor developing countries, tax revenues make up only 11 percent of the GNP, and expenditure on education and health only 4 percent.

Their tax evasion is our tax burden
The ways and means to “optimise the tax declaration” are only available to the very rich and transnational companies. Normal working citizens and small and medium sized companies pay more tax, consumers more VAT to compensate. At the same time the beneficiaries of tax evasion are the ones who are saying that our welfare state and public services are to expensive to be maintained.

Our demands
The Berne Declaration and the Swiss Coalition of Development Organizations demand that Switzerland ceases to assist tax evasion. The Swiss hair-splitting that differentiates tax evasion and tax fraud should be abolished. Switzerland should offer legal and regulatory assistance to countries also in straightforward cases of tax evasion.

Don’t keep this secret any longer! Don’t keep silent any longer! With an email you can show that you will not tolerate assistance to tax evasion.

With our best thanks for your commitment,
Andreas Missbach, Berne Declaration,
Bruno Gurtner, Swiss Coalition of Development Organizations