Swiss officials to draw up new rules for foreign clients with undeclared tax

News - Tax

Written by Ray Clancy

Monday, 29 March 2010 08:28

Switzerland’s financial regulator is to draw up rules setting out the conditions under which banks can manage funds of foreign clients that have not been declared for tax.

Patrick Raaflaub, director of the Swiss Financial Market Supervisory Authority (FINMA), said the aim of the directive on undeclared funds is to enable the country’s multi trillion dollar wealth management industry to work without risk in foreign markets.

‘A solution to this problem must be found this year to allow banks to be able to work again on their traditional foreign markets where the risks have increased greatly,’ he said.

Raaflaub added that the details of the mechanism had not yet been decided and could involve a withholding tax or some other system to ensure that the money was seen as fiscally ‘clean’.

Swiss officials argue that Swiss banks cannot police their foreign clients’ accounts on behalf of foreign tax authorities, but Switzerland has been forced to water down its banking secrecy rules and approach to tax evasion under pressure from the United States, Germany and other countries.

According to Urs Zulauf, deputy chief executive of FINMA and head of strategic and central services division legal risk in cross border client business is a major challenge for Switzerland. ‘Numerous incidents in the wake of the financial crisis have made foreign private clients uncertain about Swiss financial institutions. A notable example is Switzerland’s willingness, under pressure from the OECD, to provide, in future, international administrative assistance in the case of tax evasion,’ he explained.

‘Furthermore, the decreed disclosure of UBS client data, the step towards providing administrative assistance to US authorities as decided by the Federal Administrative Court in March 2009, and the Administrative Assistance Agreement concluded in August 2009 increased this uncertainty,’ he added.

More uncertainty has been created by the obvious willingness of foreign tax authorities to purchase client data that had been stolen, he said. ‘Our activities touch upon a sensitive area. This uncertainty of the participants in the financial centre and of the clients will further damage the Swiss financial centre if the tax position for foreign client deposits is not soon clarified,’ he said.

The Swiss financial centre has a deep-seated interest in averting the threat of part of its current business model increasingly becoming criminalised as a result of stricter legislation in other countries.

Switzerland and Germany have also just approved a double taxation agreement as part of Swiss efforts to ensure that Switzerland is not viewed as an illegitimate tax haven.