What we can learn from today’s crackdown in Switzerland

Two events in sequence.

One: international consortium of journalists splashes on successive days on their investigation into tax evasion (many years ago) by clients of Bank X in Switzerland.

Two: a week later, the Swiss authorities raid the offices of Bank X.

Somewhere someone will contend the timing is mere coincidence. But it isn’t.

What can we learn from this sequence?

This: tax havens care about reputational issues.

I wrote in more detail about what business tax havens are really in here. They compete to attract foreigners’ money. If a UK depositor starts to ask himself questions about how HMRC will view his ownership of a Swiss bank account – will it be a red flag? – he will wonder whether to move his money elsewhere. And it’s to avoid that happening – to give the appearance of Switzerland being a respectable player in the global fiscal community – that the Swiss clamp down. And, whatever the reasons for it, that clamp down improves local compliance.

If you want to reduce tax evasion, or money laundering, you need to find ways to bring pressure to bear on how tax havens operate. You need to recognise that they are so often in the business of disrupting sightlines between the money and those who own it. Improve those sightlines and you can meaningfully threaten sanctions. Meaningfully threaten sanctions and you reduce tax evasion and money laundering. Sightlines and sanctions.

What we can learn from today’s crackdown in Switzerland is that reputational issues are an effective lever.

So, well done – in the UK – the Guardian and Panorama. Well done for shining a torch into Swiss vaults. And now, let’s have a little more please.

13 thoughts on “What we can learn from today’s crackdown in Switzerland

  1. Jolyon

    What this also proves is that when I began to redefine these places as secrecy jurisdictions in the late noughties – a term now widely used – I was right to do so.

    Low tax is meaningless as a product without secrecy to disguise the fact that it is being used, and abused

    So it is automatic information exchange – which in 2009 I was assured would not happen in my lifetime – that is key to reform

    Now we also need much enhanced automatic information exchange in the UK too – so we know who is really running companies and who the self employed really are


  2. Thanks Richard. Certainly I’d agree that if we must tolerate tax havens then real countries must act to secure they have excellent visibility as to what assets their residents hold in them.

  3. Especially the USA

    And we need to have a vastly better Register of Companies

  4. Interesting article you wrote in the Guardian.

    When you say that “we” predicted £5bn from the Swiss/UK agreements, who was the “we” and what was the basis of the estimate? Maybe the estimate was wrong and the amount collected is right? I’ve noted that estimates as to how much tax will be collected by a particular measure are invariably too high (while estimates as to how much a government initiative might cost to implement are invariably too low).

    Along similar lines, how much of the money held in Switzerland by UK residents is held by non-doms? Without knowing this isn’t it a little disingenuous to make direct comparisons between France, Spain and the UK, giving the impression of an incompetent HMRC when the reality might be lots of the money is there quite legally?

    Not a single one of my clients contacted over this by HMRC was found to be doing anything wrong, they were non-doms. (OK, there were only two clients but you see how partial disclosure of the situation could be misleading).

  5. “if we must tolerate tax havens then real countries must act”

    Are you suggesting Switzerland isn’t a real country?


  6. I’m not convinced that low tax jurisidictions like Ireland or Luxembourg or the even the UK will not survive without secrecy. There are plenty of businesses that have actually and openly established themselves in those places, with tax as a significant motivating factor. If you are coming to Europe from the US or China, would you set yourself up in France or Italy, say, if you had a free choice?

    The US is (again) an elephant in the room on information exchange. They were very keen to force the expense of FATCA on the rest of the world, but seem somewhat reluctant to reciprocate by imposing the cost of CRS on their own taxpayers.

    That said, the aggressive approach of the US to Swiss banks is largely responsible for the welcome decline of banking secrecy there. It should be remembered that there were good historical reasons for the introduction of banking secrecy in the political environment of the 1930s, and it is not impossible that some people might still need to escape from oppressive regimes that would otherwise confiscate their assets (even if that confiscation has a veneer of legality).

    There are still some jurisdictions were individuals are rightly afraid of telling the tax authorioties about their financial affairs, for fear of compromising their own personal safety and that of their friends and family. For example, in Mexico, there is a system of anonymous tax payments, so taxpayers can pay what they owe without making a full return.

  7. I believe that ‘We’ in this instance is the Treasury. On what was a more than slightly dodgy bit of political spin, George Osborne took the estimated receipts from the Swiss agreement and booked them as immediate tax income, reducing the reported deficit.

    Regarding non-doms, that’s another bit of HMRC stuff I don’t understand. Have they ever challenged somebody on non-dom status? If so, how aggressively do they do so? Some of the people I’ve come across in the press as reported to be non-doms seem to have – at best – a tenuous claim based on my understanding. Especially given it’s not a defined term in legislation, I would have thought lots of people were ripe for challenge (especially given HMRC’s current success when challenging regarding other undefined terms such as ‘trade’).

  8. Yes (HM Treasury), almost on booking the receipts (HMT projected what receipts would come in over the next five years and when they would come in which receipts supported other tax and spend decisions in those years. The projection was for receipts of >£5bn and the projected receipts up until today were about £3.3bn. What HMT now thinks is that the projected receipts should have been for £1.7bn and the actual receipts up until today have been about £1.1bn. These figures all from memory but I think they’re right), they do challenge people on domicile status (it doesn’t seem very frequently but see http://www.bailii.org/cgi-bin/markup.cgi?doc=/uk/cases/UKFTT/TC/2014/TC04084.html&query=tax+and+domicile&method=boolean). I had also wondered whether they should be more aggressive in advancing challenges but… I don’t know.

  9. I agree with Andrew. Secrecy aids evasion and so must be resisied but isn’t needed for “tax mitigation” (as I now redefine tax avoidance).

    Similarly whilst we need to see an end to ‘brass plate’ company headquarters in the Cayman Islands, the reality is that an HQ and finance section doesn’t really need that many staff to create a genuine physical presence and faced with paying lots more tax and setting up a genuine physical presence with a dozen staff I can see lots of MNC’s doing just that in order to support “careful tax planning which everyone does” (as I now redefine tax mitigation).

    I for one would wilingly go and work in such a sunny place if that helped show that an MNC was “being fully tax compliant with both the spirt and letter of the law” (as I now redefine careful tax planning which everyone does).

  10. Oh, Andrew, you are a wag!

    The critical point, surely, for multinational groups with HQ and treasury companies in low-tax jurisdictions, is to work out where the value is actually added. If the management team really are based in Cayman (or where ever) then good luck to them. But in many cases those offshore companies employ a few back-office admin staff, plus one or two “directors” who in reality do what they are told by people living elsewhere, typically in the UK or the US.

    The OECD’s recent webcast suggests an intention of getting the arm’s length principle to work properly, so value is only attributed to offshore affiliate where they are doing something of real value and taking real risks. An alternative might be some sort of formulary apportionment, but as far as I am aware there are few countries willing to surrender (or pool) sovereignty over their tax base in that way. Vide, CCCTB.

  11. I will publish something on that very issue later today or poss tomorrow morning

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