Banking centres arrange tax agreements

Banking centres arrange tax agreements

25th February 2009, Comments 0 comments

Switzerland and other tax havens face growing pressure over banking secrecy.

GENEVA- Countries long seen as financial havens are quietly arranging to offer more cooperation on tax reporting as Switzerland faces growing pressure over its banking secrecy, which is alleged to encourage tax cheats.

Malcolm Couch, who is Assessor of Income Tax for the Isle of Man, told AFP, "We've quietly, in the background, without getting much acclaim, got on with working closely with the OECD, concluding lots of tax cooperation agreements."

The Paris-based Organisation for Economic Cooperation and Development is leading an initiative to encourage greater transparency in tax matters.

Couch, who is in charge of the tiny island's direct taxation matters, added that its "regulatory system is completely up to scratch".

All countries offer some degree of banking secrecy, although in some -- such as Switzerland -- client confidentiality is enshrined in law.
AFP PHOTO / Fabrice Coffrini
The border between Switzerland and Liechtenstein is seen above the Rhine river on February 19, 2008 near Vaduz. Switzerland does not fear attacks on its banking secrecy, whereas neighbor Liechtenstein found itself splashed by a giant fiscal fraud scandal gripping Germany, according to financial and banking players questioned on February 23, 2008 by AFP.

Information on clients can be released to authorities only for criminal matters in Switzerland, where tax evasion is not a crime while tax fraud -- which involves the forging of documents -- is.

Earlier in February, Switzerland's biggest bank, UBS, provided data on 250 to 300 clients to the US government. It also admitted to aiding tax fraud in the United States and paid USD 780 million (CHF 906 million) to settle the charges.

However, the US government then filed a lawsuit to try to force UBS to disclose the identities of 52,000 US customers who allegedly evaded taxes, sparking debate in Switzerland about the "end" of banking secrecy.

Swiss Finance Minister Hans-Rudolf Merz insisted that secrecy was intact.

Analysts say that as public funds are depleted for stimulus packages in the economic crisis, international pressure is expected to increase on financial centres with similar secrecy provisions.

On Sunday, European leaders preparing for the meeting of the Group of 20 nations in April called for a list of "uncooperative jurisdictions" to be drawn up, with sanctions to be imposed.

Switzerland's competitors such as Singapore, Qatar and Dubai are "not going to be happy" about the UBS settlement as they would also face the pressure, said Arturo Bris, a finance professor at Swiss business school IMD.
Swiss President and Finance Minister Hans-Rudolf Merz speaks during a press conference on February 19, 2009 in Bern. Swiss banking giant UBS has admitted US tax fraud and agreed to pay 780 million dollars to the US government, cooperate in an ongoing probe and name scofflaw clients, the Justice Department said on February 18, 2009.

"But, to the extent that banks in other financial centres are following the rules... there is no real threat to the business model," he said.

In the Isle of Man, a financial centre off Britain's northwestern coast, Couch acknowledged that there is certainly "increasing scrutiny".

"In the world of financial services, that's understood because everybody, whether they are providers of services or hosts of services... needs to show very high levels of probity," he said.

Some countries famous for their discreet banking systems are now increasingly demonstrating cooperation.

Liechtenstein's Prime Minister Elect Klaus Tschuetscher said shortly after he was elected earlier in February that it will be "unconditionally necessary" for the principality "to get away from the image of an uncooperative tax haven".

"Primarily, contact with the OECD must be sought to make clear to all potential partners how concrete and serious Liechtenstein's intentions are," he added.

Liechtenstein, Andorra and Monaco are the only three places on the OECD list of uncooperative tax havens.

AFP PHOTO / NICHOLAS RATZENBOECK Max Hohenberg, Liechtenstein's government spokesman, told AFP that the country was prepared to offer "adequate cooperation on tax ... if in return the Liechtenstein economy can get adequate agreements that address amongst others issues like double taxation."

The principality in late 2008 also signed a deal with the US to offer help on tax fraud cases involving American citizens.

"Our agreement gives legal certainty to our clients," Hohenberg explained.

Singapore too, is looking at adopting an OECD standard for transparency and exchange of tax information, according to a report in newspaper The Straits Times quoting Senior Minister of State for Finance Lim Hwee Hua.

"We will be engaging the OECD and the industry to study this OECD standard with a view to endorsing it," Lim told parliament.

The Monetary Authority of Singapore said in a statement to AFP that its banking act "does not provide a shield for criminal activities".

"We have always taken a strong stance against crime, and we will not hesitate to take action against illicit activity conducted through our financial system," it added.

Luxembourg, one of three EU countries with strict banking secrecy rules, has also proposed changes.

"Old school Luxembourgers say that without banking secrecy, our country would not have gained such importance as a financial centre," Luxembourg Deputy Prime Minister Jean Asselborn told the Swiss newspaper Sonntag.

"But in the 21st century, banking secrecy cannot be the only instrument with which Luxembourg drives its economy. Therefore, we need perhaps to redefine banking secrecy and little by little to expand on the advantage of competence," he said.

Text: Hui Min Neo / AFP / Expatica 2009

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