Swiss to go after domestic tax cheats

The Federal Council is seeking to put tax evasion on a par with tax fraud so that both offences become criminal in Switzerland.

Swiss to go after domestic tax cheats
Swiss Federal Chancellery (File)

The Finance Minister, Eveline Widmer-Schlumpf, wants to crack down on intentional tax evasion committed by Swiss citizens, newspaper Tribune de Genève reported.

Currently there exists in Swiss law a distinction between tax evasion, which is not a criminal offence, and tax fraud, which is.

Many acts that would incur criminal penalties for tax evasion elsewhere in the world are treated only as civil affairs in Switzerland. These include deliberately misreporting income on a tax return.

As a result, Switzerland has been traditionally considered lenient on tax cheats.

This may all now change. If it does, then Swiss law may be brought into line with international standards as to what constitutes a criminal offence in the event of non-payment of tax.

“In Switzerland, a tax offence is considered a trifle while it is a crime in the United States,” Jean-Christophe Schwaab of the Social Democratic Party told the newspaper. “Attitudes must change.”

Changes to the current law would enable Switzerland to focus its attention not only on foreigners hiding their money in Swiss banks, but also on the Swiss.

As is the case with foreign accounts, the proposed law would not allow investigators to go on fishing expeditions, but would require them to have clear evidence of a crime being committed.

Left-wing politicians are pleased by the idea of clamping down on those hiding taxes from the state. Didier Berberat of the Social Democratic party points out that it is really only those with independent money that are in a position to hide money from the taxman.

“Employees are much less able to deduct money,” he told the Tribune de Genève.

The implications for the international community could also be interesting should the scope of the law be extended in Switzerland.

Currently, Switzerland will only give mutual assistance to foreign countries that can show that a crime has been committed according to Swiss standards .

This means that in many instances where countries have provided evidence that their nationals are guilty of tax evasion, Switzerland has refused to assist because it does not consider the activity sufficiently serious.

Should tax evasion become criminal in Switzerland, the number of cases in which Switzerland would agree to provide assistance may also rise.

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Switzerland’s banks remain among the world’s most secretive

Despite the progress made over the years, the Swiss financial sector continues to be one of the least transparent in the world. But there is good news too.

Switzerland’s banks remain among the world’s most secretive
Switzerland remains one of the world's least transparent nations. Photo AFP

Switzerland is in the third place in the 2020 Financial Secrecy Index released by the non-governmental organisation (NGO) Tax Justice Network (TJN), which rates 133 nations based on their financial transparency.

Two other European countries, Luxembourg and the Netherlands, are also ranked among the top 10 least transparent nations on the TJN’s list.

Despite being in the third place, Switzerland ranks better this year than it did in the previous edition of the Index, which is released every two years — it slipped from the first to third place. The Cayman Islands and the United States took the first and second spots, respectively.

Switzerland reduced its risk of being an offshore haven for tax cheats by 12 percent, “finally improving enough to move off the top of the index”, TJN said. 

READ MORE: Switzerland's strangest taxes – and what happens if you don't pay them

This improvement is mainly due to Switzerland extending its international network for the automatic exchange of customer information to more than 100 countries. 

Also, in a referendum held last year, Swiss voters accepted the Federal Act on Tax Reform and AVS Financing (TRAF). This legislation introduced major changes in the Swiss tax system by ending some preferential tax schemes and replacing them with new regulations which are in line with international standards.

This tax reform prompted the European Union to change Switzerland's status from ‘tax haven' to one which is EU-compliant, removing strict controls on transactions within the EU. 

So why, despite all the reforms, does Switzerland still rank among the world’s least transparent nations?

According to a Swiss NGO Alliance Sud, wealthy people from poor countries can still hide their money here from the tax authorities of their home nations.

Alliance Sud noted that despite the progress made in the past years by Swiss financial institutions, “the fight against tax evasion remains insufficient”.

Switzerland is the world’s biggest centre for managing offshore wealth, with a quarter of global assets invested here.

For years, it has been placed on various lists of tax havens where wealthy foreigners could park their money. Faced with widespread criticism for this practice, Switzerland passed an anti-money laundering law in 1997 and introduced strict regulations against tax evasion.