Where Switzerland Goes After Signing Tax Convention

Tom Burroughes

28 October 2013

Switzerland, in a move seen in some quarters as a major retreat from its historic bank secrecy regime, has signed a multi-lateral convention on tax issues. (To see that article, click here.) To make sense of the issues, this publication recently quizzed legal experts at about the convention and where Switzerland goes from here. It spoke to Michael Parets, partner, at the firm’s Zurich office.

Is this signing a real move towards the end of bank secrecy, as some news headlines would have it? If not, what does it amount to?

Switzerland's signing of the Multilateral Convention for tax information exchange is not its first step on the path towards more transparency with regards to Swiss account holders and their tax structuring. While this does provide further evidence that Swiss bank secrecy as we have known it is indeed dying, I expect that Switzerland will continue to preserve the rights of account holders to financial privacy.

All of this has very real long-term implications for the banking industry in Switzerland, but the Swiss government's deal with the US Department of Justice - the 'Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks' - that was finalised in August is having a much greater and more immediate impact on the banking industry. Nonetheless, the Multilateral Convention is another indication of the historic changes taking place.

Do you have specific advice to give clients in the light of this move and what sort of advice would you give, and why?

Our suggestion would be that Switzerland’s signing of the Convention, amongst other developments, makes it clear that Switzerland no longer wants to be viewed as a refuge for tax evasion. People who are looking to enter into, or to retain, Swiss banking relationships need to now expect fiscal transparency.

How, in general terms, would you describe this convention in terms of what it means for Switzerland and its banking/financial services sector?

The Swiss banking sector has seen, and can expect to see more, flight of account holders repatriating assets to their home countries, as well as account holders who feel that they cannot disclose their assets to their home tax authorities, and no longer view Switzerland as the best place to accomplish this.

Despite this loss, this should prove to be a positive development for the Swiss banking industry in the long term. Not only has the industry grappled with, and found solutions to, problems that have threatened its very existence, but it has done so before several other jurisdictions that will ultimately face the same problems, and Switzerland will therefore be in a position to build on its place in the private banking market ahead of its competitors. What’s more, account holders who choose to keep their assets in Switzerland are likely to do so for reasons that are more sustainable.

What are your predictions as to what will happen next in Switzerland?

The Swiss government is likely to continue to engage in tax information exchange agreements with other countries, and I don’t think that there is any surprise in saying that the Swiss banking industry is likely to experience some difficulties through this transitional period and as it adjusts to the new environment. But I think the Swiss banking industry will prove to be resilient and dynamic enough to weather the current storm, and ultimately be better off.

How will this signing of the convention affect other, bilateral treaties that Switzerland has signed, such as its deal with the US over a number of banks?

The Convention is a commitment, signalling that Switzerland will cooperate with other jurisdictions and will provide administrative assistance in tax information exchange. It has no impact on the US-Swiss bank disclosure deal, but it should provide a path to new approaches to tax information exchange agreements and the negotiation of perhaps similar deals on terms that are more advantageous for Switzerland.