End of banking secrecy in Switzerland

Switzerland, the country most noted for its anonymous numbered bank accounts and tight banking secrecy became the world’s 58th nation on Tuesday to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

The agreement prepared by taxation experts from the Paris-based Organisation for Economic Cooperation and Development (OECD), which has led the war against tax havens in recent years, was signed by Switzerland’s ambassador to the OECD and the Organisation’s Secretary-General Angel Gurria in Paris. This marks “the end of banking secrecy” in Switzerland, the head of tax issues at the OECD, Pascal Saint-Amans, said adding that the Convention “prepares the way for the automatic exchange of tax information.”

The Swiss Federal Council gave its approval to the treaty on October 9. This is a momentous step for Switzerland because it means it will be breaking its own time-honoured and time-tested laws on banking secrecy. But international pressure had become so high with whistleblowers giving out details of money laundering and massive tax evasion by individuals and companies with the help of Swiss banks, that the signing of the Convention became almost inevitable.

The United States imposed stiff fines against major Swiss banks after obtaining a list of tax evaders who kept their illicit funds there and both Germany and France obtained similar lists (some against payment) of wealthy tax dodgers who were actively helped by Swiss banks to conceal their riches.

The financial crisis of 2008 also ignited public resentment against the Swiss who were which was seen as a grasping, greedy nation.

According to the AFP agency, “The OECD wants to make this the normal practice internationally, but it continues to be an extremely sensitive issue for the Swiss, as well as for some other countries. Under the convention as it stands, however, the automatic exchange of information is optional. ”The Multilateral Convention provides for all forms of mutual assistance: exchange on request, spontaneous, tax examinations abroad, simultaneous tax examinations and assistance in tax collection, while protecting taxpayers’ rights.

It provides the option to undertake automatic exchange, while requiring an agreement between the Parties interested in this form of assistance. With the support of the G20, automatic exchange is becoming the new international standard, and Switzerland adheres to an instrument that will allow it, in due time, to join the jurisdictions that will decide to exchange financial information automatically. India is already party to the Convention and the fact that Switzerland has now joined will help Indian authorities obtain information on Indian money illegally stashed away in Swiss banks with greater ease. It will, however, be a gradual process because the Swiss have to first ratify the Convention, not an easy proposition under their complicated laws of direct democracy and multiple referenda. OECD Secretary-General Angel Gurria welcoming Switzerland’s adherence to the Convention, said it “sends a clear and strong signal that Switzerland is part of the community of States which consider international tax co-operation as a necessity. This signature is an important step for Switzerland to resolve the issues identified in its Peer Review by the Global Forum on Transparency and Exchange of Information on June 2011.”
Switzerland’s Ambassador to the OECD Stefan Flückiger said: “Switzerlahas been committed to complying with international standards in tax matters since March 2009. The signing of the Convention confirms Switzerland's commitment to the global fight against tax fraud and tax evasion with a view to safeguarding the integrity and reputation of the country's financial centre. “But the story does not yet have a happy ending. The Convention must be ratified by Switzerland and its complicated direct democracy laws that give great powers to its tiny individual cantons could still vastly complicate matters. However, this is a significant first step.