What is tax compliance
Tax compliance in exchange for market access
The fact that the federal government has committed itself to a strategy to combat the acceptance of untaxed money is in the interests of the Swiss financial center. Just as important, however, would be measures that definitely regulate the past and give Swiss banks access to international markets.
In February 2012, the Federal Council presented the so-called white money strategy - in our view an inappropriate term for a strategy that aims to achieve tax compliance but at the same time can be associated with money laundering. Regardless of the terminology, however, we are in favor of a strategy to combat the acceptance of untaxed funds. The rules that protect privacy in our country should not be able to be used to evade the tax authorities in other countries. Nevertheless, the Federal Council is on the wrong track.
Beyond the goal
To implement this strategy, the Federal Council has sent two drafts for consultation, which must be distinguished. On the one hand, there is the draft to amend the Money Laundering Act, which imposes extended duties of care on financial intermediaries to prevent the acceptance of untaxed assets. On the other hand, it is about the implementation of the revised FATF recommendations, under which a criminal tax offense is now a predicate offense to money laundering.
Various objections must be made to the second consultation draft. Extending the concept of tax fraud to include fraudulent misrepresentation is unacceptable. The malice model is not clearly delimited and goes far beyond the necessary adjustments, because the FATF does not require any such regulation. Such a far-reaching change in internal Swiss law must under no circumstances be made through the back door by pretending that it is an adjustment to international standards. Therefore tax fraud should be limited to the forgery of documents. Furthermore, the relevant amount for a tax crime, which was set at CHF 600,000, should not relate to taxable assets (since otherwise practically all private banking customers would become potential criminals), but to taxable income - which is the case FATF recommendations would suffice. The consultation draft on the due diligence is based on the idea that the tax compliance of each customer can be determined on the basis of previously defined criteria.
Despite certain positive aspects, such as the risk-based approach, there are numerous reservations about this draft. This also applies to retrospective validity, which is a source of legal uncertainty and is therefore unacceptable. The application of the duty of care must remain limited to new money and must not extend to assets already deposited in Switzerland. We doubt that the white money strategy desired by the Federal Council is understood abroad. The G-20, the OECD and the EU recently made it clear that they are relying on the automatic exchange of information. This paradigm shift must be incorporated into the Federal Council's strategy. Without wanting to anticipate the position of the Swiss government on the automatic exchange of information: It is not advisable today to introduce unilateral due diligence obligations that no other financial center will ever prescribe.
The white money strategy must be reconsidered taking into account two vital principles for asset management in Switzerland: the regulation of the past and access to other markets. The submission of the Federal Council on the due diligence obligations with its retrospective effects contradicts the strategy pursued up to now. This consists of settling the problem of contaminated sites by concluding withholding tax agreements.
Value creation at risk
The only correct strategic goal for the Swiss financial center is to conclude a service agreement. Should such an agreement be concluded with the EU, the settlement of the past would have to be part of the negotiations. Once effective access to the EU market has been negotiated, it will be easy to regulate tax compliance. A solution with an efficient, well-balanced withholding tax withholding tax would be ideal. Whether this is a realistic option remains to be seen.
More than half of the value added by banks in Switzerland comes from asset management. These are essentially cross-border activities. Without market access, banks would have no choice but to relocate their jobs abroad. This would lead to a significant decline in employment and impoverishment of our business location. So far, Switzerland has always acted defensively. Now is the time to go on the offensive.
Yves Mirabaud, Managing Partner, and Lionel Aeschlimann, Partner and Head of Asset Management, Mirabaud & Cie Banquiers Privés.
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