October 27th brought with it the signature of a revised dual tax agreement (DTA) between Switzerland and Germany which was widely considered to be a success for the Swiss nation. Admittedly, the new DTA recognises the principle of administrative assistance in fiscal matters, which means that Germany can now obtain information based on suspicions of tax evasion. Despite this, Switzerland retains what is now essential; an introduction to the acceptance of its proposal of repatriation at source taxation, also known as Rubik. The principle is simple – it revolves around paying taxes due on undeclared funds placed in Swiss banks to the depositors’ countries of origin yet guaranteeing said depositors’ anonymity.
Rubik is the only means Switzerland can use to topple the automatic exchange of information (AEI), although the policy is due to be generalised over time. Despite the fact that Switzerland is not part of Europe, it has been under enormous pressure to conform to European legislation.
Until the financial crisis of 2008- 2009, Switzerland’s strategy was primarily based on garnering support from those EU members who opposed automatic exchange – Luxembourg, Belgium and Austria. But Belgium conceded by announcing its transfer to automatic exchange and the two other nations appear to have no choice but to capitulate soon. Swiss Federal Councillor Hans-Rudolf Merz’s March 13th, 2009 announcement that Switzerland was suppressing the distinction between fraud and tax evasion has potentially disastrous consequences for both Luxembourg and Austria.
As a matter of fact, the two nations have accepted the automatic exchange in principle once Switzerland accepts the exchange the EU has requested.
Therefore, Switzerland’s March 13th, 2009 announcement accepting Article 26 of the OECD’s dual taxation model means acquiescence to those exact parameters – the exchange of information upon request. This does not exactly constitute the complete eradication of bank secrecy, but what’s left of it remains fragile.
Consequently, nationals of any one of the 27 countries which either signed a revised DTA with Switzerland or are in the process of doing so need to keep a very low profile if they want to preserve the anonymity of their Swiss bank accounts. Fiscal bodies need only have precise information on the existence of a Swiss bank account for the nation concerned to request administrative assistance from which said nation would be likely to benefit.
The discreet sense of euphoria which pervaded the Swiss financial sector in late October under these conditions might seem surprising, if not unreal.
However, this feeling is justified in the sense that the accord signed on October 27th actually represents regaining control on a greater scale. In other words, Swiss financial intermediaries are under the impression that Federal Councillor Merz managed to raise the bar just before withdrawing from politics. But this tour de force wouldn’t have been possible had Switzerland come to the negotiations empty-handed, simply refusing the AEI without proposing something to replace it. That is precisely why the proposal known as Rubik was designed.
Rubik is inspired by Italy’s Tax Substitution policy, a particularity of the Italian legal system which allows accountants to pay taxes their clients owe without divulging their identities and was picked up in Ticino’s banking sector. Rubik became a revitalised Switzerland’s pivotal position at the end of 2009. Switzerland’s mainstream Right Wing party (Liberal Radical Party) had already adopted the idea in June, 2009 and that Fall the Swiss Bankers Association officially announced its support. Early 2010 brought with it other signs of recovery when the Federal Department of Justice came back with a Notice of Right on requests for administrative assistance founded stolen information, which clearly specifies that any such requests based on data obtained in a manner which violates Swiss law will be categorically rejected.
March 26th, 2010 marks another important date with the signing of the new DTA project between Germany and Switzerland. It marked Germany’s acceptance of beginning negotiations on a wider basis which didn’t exclude the concept of a repatriation tax at source agreement from that point forward.
Upon reflection in Berlin, Rubik appears to be an attractive way to cash in on significant sums over a relatively brief period of time, considering the fact that Germans used Swiss banks to deposit approximately 200 billion Euros in undeclared funds. However, Germany is likely to accept Switzerland’s proposal only if the clients concerned accept to pay the price, which could total something in the neighbourhood of 40 billion Euros. The discussions underway between the two nations are essentially centred on the question of repatriating taxes on funds which were deposited long ago.
The Germans are seeking a rate between 25% and 35%. It’s easy to understand why numerous clients chose to benefit from Germany’s offer to clear their fiscal status on an individual basis, without waiting for the results of negotiations on the question of signing a new DTA. On the one hand, the applicable rate of these individual clearances of fiscal status is usually between 10% and 20%. On the other, Switzerland must do more than reaffirm its position. It is crucial that the Swiss manage to retain their clients’ trust and one can but affirm that the message is having some difficulty in getting across. The sums fiscally cleared by Germans individually in the first semester of 2009 are estimated to be near 20 billion Euros in aggregate, ten times more than those over the first six months of 2010.
Furthermore, this action is taken within the context of banks which have a bevy of tax experts at hand to assist the clients concerned. It is crucial to take steps which allow the client to measure the ramifications without being exposed – hence the need to have a mandated intermediary who has contacts in the particular nation’s tax administration.
The fiscal clearance option also depends on a client’s personal profile; non-working or retired clients who don’t wish to make transfers from Switzerland have good chances of preserving their anonymity. If Rubrik succeeds, these clients will also benefit from the serenity of knowing that – should it be necessary – they can obtain a fiscal statement directly from their banks.
This has proved to be yet another instance where panic provides poor counsel, particularly as those who give in to fear often do so based on erroneous information – and it’s particularly striking when applied to these re-negotiated DTAs. Contrary to what was often propounded after March 13th, 2009 the State will not be able to request administrative assistance on the basis of vague accusations.
In terms of this, the text of the ordinance relating to administrative assistance following the conventions on dual taxation (OACDT) is very clear. The accord’s Article 5 requires that no less than eight conditions be met in order to follow up with administrative assistance. The State in question must specifically explain the reasons behind the request in a convincing manner, describe how the existence of the account was discovered, transmit precise information on the client’s name and that of the bank as well as prove that there are no other options available. The OACDT is therefore further proof of Bern’s commitment to protecting confidentiality for foreign clients at Swiss banks. Taken in context, the ordinance therefore signals a return to the Swiss tradition of enforced and secure privacy laws.
