Swiss MPs reject US tax evasion agreement

Switzerland’s lower house of parliament has voted against debating a secret deal between Bern and Washington aimed at settling a legal battle over Swiss banks’ alleged complicity in tax evasion by American citizens.

Swiss MPs reject US tax evasion agreement

The house of representatives, or national council, voted 126 to 67 against considering the “Lex USA” with two abstentions.

The rejection marked a major defeat for Finance Minister Eveline Widmer-Schlumpf who promoted the deal made between the governments of the two countries at the end of last month.

She had urged parliament to approve the legislation, which would have allowed Swiss banks to circumvent the country’s banking secrecy laws to turn over account information to US tax collectors.

The lower house rejection of the deal follows the recommendation of a parliamentary committee last week, although the senate previously backed the measure.

Widmer-Schlumpf will now take the bill back to the upper house of parliament for reconsideration on Wednesday.

If the senate rejects it, the legislation is dead.

If it approves the deal, the matter will return to the lower house.

The deal is seen as crucial if Swiss banks are to escape the threat of a raft of lawsuits in the United States, as well as being barred from the big and profitable American market.

But they could also fall foul of Swiss law.

Swiss banks are believed to hold accounts worth billions of dollars belonging to American citizens who have not declared these assets to US tax authorities.

With the global economic crisis having put tax havens into sharp focus — notably at the G8 summit this week — Switzerland has fought to defend its cherished principle of banking secrecy by giving ground in some areas but declining to allow the automatic handover of account details.

Under current international rules, the United States has to make a formal request for legal assistance concerning a specific individual tax-dodger, a procedure seen as cumbersome in Washington.

Under the take-it-or-leave-it deal proposed by the US side and approved by the Swiss government at the end of May, Swiss banking secrecy rules would be frozen for one year for American clients.

But parliamentary approval is required for the change, otherwise the banks risk finding themselves on the wrong side of Swiss law if they give US authorities the names.

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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.