 PRESENTATIONS |
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Event London 6 June 2000
Is Switzerland an offshore centre or not?
by Professor Niklaus Blattner
Chief Executive Officer, Swiss Bankers Association
Ladies and Gentlemen,
The term "offshore centre" conjures up a variety of images and connotations. But as far as I am aware, there is no universally-accepted definition of the term. The most innocent description would have offshore centres as places simply offering private banking for international clients. But of course, we are not so nave to ignore the fact that the term "offshore centre" also has negative connotations. A place where free-riding, sun-tanned characters spend the day on beaches of virgin white sand sipping long drinks under palm trees while their funds of dubious origin dry untaxed in a local bank.
More technically, it's often claimed that many "offshore centres" lack an effective system of financial supervision and that they are not enthusiastic in their cooperation with foreign authorities. They are often described as paradises for money-launderers who exploit the very absence of effective financial supervision. There are often low or no tax rates for non-residents, impenetrable banking secrecy laws and a general refusal to cooperate with foreign authorities. Many people think of Switzerland as a classic example of just such an "offshore centre". They are wrong!
We certainly can't offer much in the way of palm trees and virgin beaches. However, I would be the first to admit that Switzerland is an "offshore centre" in the sense that it successfully offers banking and asset management services to an international clientele. It's estimated that roughly a third of the world's private assets invested abroad are managed in Switzerland. There are good reasons why people have come and will continue to come to Switzerland for these services. Switzerland has a long and excellent track record of diligent banking and successful asset management. In fact, we've clocked up over two hundred years' experience in this field. Switzerland enjoys an extremely high level of monetary and political stability. There has always been tremendous respect for democratic traditions in Switzerland, and in particular the private sphere of an individual has always been considered sacrosanct. In addition, Switzerland applies technological developments rapidly to keep its infrastructure as modern and as efficient as possible. That applies equally to running trains, manufacturing watches or pharmaceutical products as well as banking, including the trading, clearing and settling of securities. Of course, Switzerland is not the only financial centre in this context. Others are developing rapidly as well, and competition is constantly increasing as other financial centres seek a larger slice of the pie.
Now let's put on the spectacles of the Financial Stability Forum, an institution created by the G7 countries. The Forum recently issued a report that considered the implications of offshore financial centres for global financial stability. We were happy to read that Switzerland is not perceived as posing a threat to global financial stability. In particular, we were satisfied that Switzerland was recognised by the Forum to be an "unproblematic jurisdiction", classified in the top category of the list in terms of regulatory standards of all offshore centres identified. As a G-10 member of the Basel Committee on Banking Supervision and founding member of the Financial Action Task Force on money laundering, Switzerland has a high level of regulation, in conformity with the recommendations of these organisations and equivalent to the rules in all the other worldwide leading financial centres.
Switzerland certainly does not consider itself to be an offshore centre in the negative sense of the word. The incorporation regime corresponds to international standards. There is no regulatory or supervisory distinction between onshore and offshore or resident and non-resident activities. In Switzerland there are neither offshore licences nor preferential treatment for offshore activities. Switzerland is a major international financial centre with a significant amount of business with non-residents. The same applies to other countries like the USA and of course the UK. But unlike these, Switzerland was included in one of the offshore categories by the Financial Stability Forum. This is not correct, since the only issue is whether the international regulatory and supervisory standards in the financial area are implemented or not. In Switzerland, they are implemented.
Now let's put on the spectacles of the OECD. In April this year a working group of the OECD's Committee on Fiscal Affairs issued a report called Improving Access to Information for Tax Purposes. This report recommends measures member countries should take to improve such access. The report acknowledges the legitimate role played by banking laws in protecting the confidentiality of the financial affairs of individuals. It then calls on member countries to abolish anonymous accounts, to improve access to bank information for tax purposes and to allow the direct or indirect exchange of information between foreign tax authorities.
In our press release on the report, the Swiss Bankers Association noted that the Swiss legal system already conforms with the report's recommendations and that there was no need to make any changes that would affect the customers of Swiss banks. First of all, anonymous accounts are forbidden by Swiss law. Furthermore, Swiss bank customer confidentiality rules offer no protection to criminals, neither do they protect anyone committing tax fraud from criminal prosecution. It is irrelevant whether the offence was committed in Switzerland or abroad.
Under certain preconditions Switzerland offers foreign states the possibility of legal assistance. One of these conditions is the principle of "double incrimination", whereby the conduct considered to constitute an offence in a foreign country also constitutes an offence under Swiss law, as is the case with tax fraud. The principle of double incrimination is standard in international law.
I would now like to raise a more political topic - namely the attempts by the European Union to harmonise national tax legislation. The guidelines proposed by the European Commission aim to compel member states either to report interest payments made to private individuals resident with the EU to the tax authorities, or to levy a withholding tax. For obvious reasons, the European Commission would also like to see countries outside the EU, such as Switzerland, adopt these proposals.
Because of Swiss bank customer confidentiality laws, the reporting obligation is simply out of the question for Switzerland. The withholding tax model is much less controversial for us. For many years now Switzerland has imposed the highest withholding tax in the world - 35 percent - to encourage tax payers to honestly declare their savings and bond income to the tax authorities. The tax is refunded when the tax authorities are satisfied that a complete and accurate declaration has been submitted. In Switzerland the withholding tax is tied to the debtor, i.e. to the issuer, who then forwards the tax proceeds due by the saver or bondholder to the Government. We consider this an extremely appropriate alternative to compulsory reporting by paying agents or any other institution, since it is the investor who has the responsibility of complying with his or her legal duties with regard to the relevant tax authorities.
Furthermore, the debtor, i.e. the issuer of a bond, is not generally mobile; a company cannot simply move its head office from one country to another in order to avoid withholding tax. We believe the Swiss system could serve as a model for the EU in its efforts to harmonise taxation. The Swiss government recently made clear that it is hoping progress will be made in the EU and that it is not in principle against any form of cooperation. To conclude, I would like to remind you of my original thesis. Switzerland is an "offshore centre" in the sense that it is a major sophisticated financial centre successfully offering banking and wealth management services to an international clientele. It is certainly not an "offshore centre" in terms of being an unregulated paradise for criminals and tax fraudsters.
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