ZURICH (Reuters) - Switzerland may have to consider full transparency to give a future to its $2-trillion offshore banking industry as concessions made so far have done nothing to stem relentless pressure from big European neighbors.
Even though Switzerland offered on March 13 to help foreign authorities fight tax evasion, cash-strapped European Union countries cannot directly access bank data on an estimated $600-700 billion of undeclared European assets hidden in Swiss accounts, known as “Schwarzgeld” or black money.
After an Italian tax amnesty drained billions of francs and Germany said it would buy a CD-rom with stolen Swiss bank data, Berne has resolved to discuss on February 24 a strategy to put an end to international attacks.
A damning U.S. tax probe into help Swiss bank UBS(UBS.N) UBSN.VX gave to Americans seeking to hide money abroad has also weakened Switzerland’s international status.
“If I look back at the events of last year, I see a certain acceleration,” Michael Reiterer, the European Union Ambassador to Switzerland said earlier this week.
“You can discuss whether it is moral or not to buy ... a CD. But the data are sometimes grey if not black,” he added. “Wouldn’t it be an idea to discuss a strategy to get rid of the grey and of the black?”
Although there is no official Swiss government position yet, a task force suggested in December that Switzerland could broaden its existing “Rubik” scheme under which it pays EU countries part of the tax levied on interest accruing from savings in Swiss bank accounts.
The plan is strongly backed by the Swiss banking industry, which wants to freely market its products to the 500 million EU customers, and the Swiss would like to offer this proposal only in exchange for better access to the EU financial market.
Currently, Swiss bankers cannot visit their foreign clients in their home country or promote services abroad and clients risk being identified by custom officials when they cross the border.
“We must see the issue of EU market access in conjunction with the Swiss offer to introduce a withholding tax for European tax-volatile customers,” said Alfredo Gysi, CEO of Swiss bank BSI (GASI.MI) and head of the Swiss foreign banks association.
“That is a generous step of Switzerland, which would provide European neighboring countries with substantial incomes from the funds administered in Switzerland.”
But a diplomatic source said the proposal may not be enough for the 27-member EU bloc, which is already pushing reluctant member states Luxembourg and Austria to drop bank their own secrecy laws and adopt automatic exchange of tax information.
Restricted access to the vast EU financial market is becoming more and more a hindrance for Swiss financial operators.
Even legitimate Swiss banking services may be limited in the future as Switzerland has not yet signed a bilateral agreement with the EU for the free circulation of services.
“(One) issue that has not yet been solved for Switzerland is market access to the European Union,” said Pierre de Weck, head of Private Banking for Germany’s Deutsche Bank (DBKGn.DE).
“Unless that issue gets solved very quickly, in a transparent world the legitimate cross-border offshore European business into Switzerland will become more difficult and one would have a tendency to migrate to London or Luxembourg.”
Switzerland is the world’s biggest wealth manager with 27 percent of global offshore assets, followed by rivals Britain and Luxembourg.
One alternative to the Rubik plan could be moving to full transparency after a sufficiently long transition period so to allow clients to either come clean or to move elsewhere.
The Swiss are hoping that the country’s political and currency stability and their banking expertise will offset the impact of diluting or losing their famed bank secrecy.
Neighbor Liechtenstein, until recently a very opaque tax haven, has adopted this solution in a bilateral tax treaty with Britain. The accord envisages a special disclosure facility for clients of Liechtenstein banks who have dodged taxes and a transition phase that lasts until 2015.
Swiss Finance Minister Hans-Rudolf Merz, who was much criticized for his handling of the bank secrecy strategy as well as the UBS tax spat, has shown no signs of wanting to give in.
“We have to resist against such foreign demands. We have to be firm,” he told journalists on Tuesday.
But Justice Minister Eveline Wiedmer-Schlumpf told newspaper Blick that EU states would not accept the withholding tax proposal alone and stressed the need to find a solution to the black money issue.
“The EU stance is this: if we want to get access to the EU market, we have to also accept all other EU mechanisms, for instance the automatic exchange of information,” she said.
While bank giants UBS and Credit Suisse CSGN.VX are focusing on tax-compliant assets, smaller private banks and many Swiss subsidiaries of foreign banks which are thought to hold a large share of untaxed assets are dragging their feet.
But time is running out, and a decision may be needed soon.
“The train is moving and the decision is whether to hop on the train,” said ambassador Reiterer. “My advice to Switzerland would be not to throw itself in front of the train.”
(Additional reporting by Oliver Hirt, Editing by Sitaraman Shankar)
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