The Swiss don't like being told what to do, and even though some of their key products -- cheese, Cartier watches and chocolates -- could face trade sanctions, the Swiss may vote to block new tax treaties. A key case hanging in the balance is the U.S. tax evasion case involving the opening of 52,000 Swiss bank accounts on deposit at UBS (UBS).
To avoid being blacklisted by the G20, Switzerland joined Luxembourg, Austria, Liechtenstein, Monaco, Andorra and Singapore in signing an Organisation of Economic Cooperation and Development treaty to share tax information. These countries joined a "grey list" of countries that agreed to implement tax standards but have not yet done so. If these standards are implemented, the banks in these countries would have to change their banking secrecy laws. And people who use these tax havens to avoid tax in their own countries by stashing their money in secret accounts would no longer be able to do so.
The Swiss can challenge the new treaty by getting 50,000 signatures on a petition to call for a referendum on the ballot and use that referendum to reject the tax treaty. The Swiss Bankers Association conducted a survey about the protection of privacy on financial matters and found that 78 percent of Swiss citizens support preserving bank-client confidentiality. The Association said in its press release on the study, "The banks continue to be regarded as solid and trustworthy, and once again are perceived to be the most important sector of industry in Switzerland."
Swiss president Hans-Rudolf Merz told the British newspaper the Guardian that Switzerland was "not a tax haven" and called the OECD grey list regrettable. David McNair, Christian Aid adviser told the Guardian, "the burden of proof required for poor countries to obtain information on tax dodgers is incredibly onerous. We urgently need a system open to all countries, for the automatic exchange of tax information."
Angel Gurria, OECD secretary general, insists that the new treaty does not open secrecy laws and allow governments to go on a fishing expedition for tax evaders. He told the Guardian, "A country can still refuse to give information if it believes that the receiving country would not respect confidentiality. The goal is not to have names plastered on the front pages of newspapers, the aim is to make people pay the taxes they should pay."
If countries refuse to abide by the new G20 rules they will be blacklisted. If blacklisted, sanctions could include extra audits of those who use tax havens and curbs on tax deductions claimed by businesses who use the banks as tax havens in blacklisted territories. Gurria said the sanctions will be decided by individual governments and not imposed by the OECD.
For years, U.S. citizens have evaded billions of dollars in taxes. Now that the U.S. and many other countries are facing a downturn in tax revenues, tax havens have become a crucial target for finding new revenues. Getting people to pay the taxes they owe by allowing information exchange between taxing authorities and foreign banks will provide more funds for the bailout. Why should some people be allowed to avoid paying their fair share of bailout costs just because they use a foreign bank?
Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies.
Improve your investing savvy with the right financial toolset.View Course »