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Despite the significant progress that has undoubtedly been made in terms of tax transparency, Switzerland fears that it will be placed under enormous pressure to up the tempo of reform at the upcoming Global Forum meeting in Jakarta.
The Confederation appears to be caught between a rock and a hard place. On the one hand, Switzerland is determined to proceed to the second phase of the Global Forum's Peer Review process, to avoid any further damage to its reputation. On the other, the Swiss Bankers' Association (SBA) has recently warned that constant amendments to Swiss law, and uncertainties surrounding the harmonization of taxation practices, are already proving harmful to the Swiss financial center.
Switzerland is and is likely to remain the international scapegoat, deemed to be forever lagging behind other more tax-compliant jurisdictions. Yet the Confederation has come a long way since 2009 in terms of lifting the veil of traditional banking secrecy. Not only has it elected to provide administrative assistance in tax matters, but it has also successfully concluded 42 OECD-compliant bilateral double tax agreements (DTAs), and, crucially, signed the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters at the end of October.
Furthermore, the Government has twice fine-tuned its Tax Administrative Assistance Act. Switzerland agreed at the beginning of the year to allow group requests. As a second step, the Confederation now aims to allow deferred notification of taxpayers who are the subject of administrative assistance proceedings – albeit in exceptional cases, for example where an investigation would risk being compromised in the event of prior notification. Parliament is to vote on the latest envisaged partial revision to the Act in December.
However, Switzerland's main financial center rivals, Luxembourg, Austria, the UK, Monaco, and the Cayman Islands, appear to be one step ahead. At the Global Forum gathering on November 21 and 22, these countries will receive ratings for implementation of the international standards on transparency and information exchange, while Switzerland must await its fate until next year.
As Anne Césard, spokesman for the Swiss State Secretariat for International Financial Matters, recently made clear, it is vital that Switzerland demonstrates that it has made significant progress since its 2011 evaluation report, and that the Confederation underlines its commitment to swiftly proceeding to phase two of the Peer Review process.
In contrast, the Swiss Bankers' Association highlighted its own concerns regarding recent developments, in its November wealth management report.
The SBA urged the Swiss authorities and politicians to continue to support the financial center, with a stable and reliable regulatory framework, if banks are to be free to concentrate on their core competences and do business on behalf of clients.
According to the SBA, this includes, above all, "maintaining traditional location factors in Switzerland: political, economic, and fiscal stability, legal certainty, as well as a competitive tax system."
The SBA explained that: "In the past, banks and their clients have been able to benefit from all these factors. Yet these are now at risk from constant amendments to Swiss law, uncertainty in connection with the harmonization of taxation practices and the movement away from an opening up of the market."
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