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Pictet Warns Of Major Swiss Financial Center Challenges

by Ulrika Lomas,, Brussels

12 June 2013

In his June General Assembly address, President of the Swiss Private Bankers Association (SPBA) Nicolas Pictet highlighted the key challenges currently facing the Swiss financial center.

While perhaps not the most urgent issue to be addressed, the biggest concern for the SPBA remains ensuring access for Swiss banks to foreign markets, notably to the European Union (EU), Switzerland's "natural market," Pictet explained, pointing out that around half of the clients of Swiss wealth management banks are EU residents.

Emphasizing that financial market regulation is in huge flux in Europe at the moment, Pictet warned that with every new European directive there is a real risk of a further discrimination against third states such as Switzerland. EU member states are at liberty to "invent" protectionist regulations, and are indeed protected against such provisions, Pictet argued, insisting that this poses a real danger and threat for Switzerland.

A further challenge facing the Confederation is the ongoing "crusade" against tax evasion and tax fraud, spearheaded by debt-ridden, belt-tightening countries in Western Europe, the SPBA President maintained.

Pictet cited some of the key tax files, which are either currently being debated or have been agreed and implemented by the Swiss Federal Council in the last few years. These include the so-called bilateral "Rubik" accords, concluded between Switzerland and the UK and Austria. These landmark treaties provide for the taxation of previously undeclared and future income of UK and Austrian clients of Swiss banks by means of a withholding tax, while at the same time preserving anonymity. A "Rubik" deal with Germany was blocked in the German Bundesrat, or upper house of parliament, however.

Other major tax dossiers include the Foreign Account Tax Compliance Act agreement negotiated with the US, which has yet to be approved by parliament, and the settlement deal sought with the US to end the longstanding dispute with Swiss banks. Furthermore, Switzerland has implemented Global Forum regulations on transparency and information exchange in tax matters, together with the OECD's latest standards, including the allowance of group requests, and has amended its criminal tax code and classified severe tax offences as a crime and therefore predicate to money laundering, in accordance with the revised Financial Action Task Force (FATF) recommendations.

Finally, Switzerland is to engage in discussions surrounding the move towards an automatic exchange of information as sought by the G20, and is to enter into a dialogue with the EU on the planned revision of the European Savings Tax Directive, Pictet noted.

As a result, numerous, uncoordinated initiatives have been launched, which have overburdened Switzerland, lead to immense costs, and meant that the country's legal, tax, and compliance services are currently at breaking point. Moreover, the changes have resulted in a loss of one of Switzerland's key strengths, namely legal certainty, Pictet warned, urging the Federal Council not to initiate any further measures

Alluding to the Swiss financial center's third and final challenge, namely the Federal Council's "white money strategy," aimed at ensuring future tax compliance and halting Western Europe's tax crusade, Pictet made clear that while the SPBA fundamentally supports the concept, it nevertheless has concerns that the proposals may disadvantage Switzerland as a location, compared to rival financial centers, including New York, London, and Luxembourg. Additionally, Pictet underscored that the strategy is not recognized or understood abroad and carries with it considerable practical problems.

Back in February, the Federal Council launched a consultation on plans for its "white money strategy," which involves negotiating "Rubik"-style withholding tax agreements with certain target countries, to regularize the tax situation of partner state residents with accounts held in the Confederation. The strategy also includes plans to extend mutual assistance in tax matters, and to introduce enhanced due diligence requirements, to prevent the acceptance of untaxed assets in Swiss banks in future.

Pictet also expressed his criticism of plans to impose enhanced due diligence requirements on banks in Switzerland. Pictet argued that the idea merely gives rise to suspicion in the system, contradicting the constitutional principle of trust and faith. Financial intermediaries should be able to assume that their clients are honest, and only intervene on the basis of objective indications of a lack of tax compliance, Pictet stressed.

Pictet also regretted the fact that the Federal Council plans to impose enhanced due diligence measures with retroactive effect. Banks were given to understand that the provisions would merely apply to new money, he clarified. Pictet insisted that Swiss citizens should not fall within the scope of the new law. Finally, Pictet made clear that it would simply be "irresponsible" for the Federal Council to implement such a fundamental reform of the country's legislative framework without having first assessed the impact or consequences of waving through such changes. Pictet therefore called on the Federal Council to carry out an impact study and international comparative analysis before pressing forward with its plans.

In his concluding remarks, Pictet emphasized that Brussels is not in a position to treat Switzerland like Luxembourg and Austria in tax matters, and like Malysia with respect to market access. The SPBA President maintained that unilateral concessions by Switzerland must be ruled out and underlined the importance of finding an alternative to the "Rubik" accords, to resolve the past and to ensure that Switzerland is not excluded from key foreign markets.

Switzerland must become involved in the drafting of future legislation and not passively sit back and have measures imposed, the SBA President ended, underscoring that Switzerland must take up the reins once again and act innovatively and proactively, rather than merely waiting for others to decide the Confederation's fate.

TAGS: compliance | Western Europe | Foreign Account Tax Compliance Act (FATCA) | tax | investment | tax compliance | FATCA | law | Organisation for Economic Co-operation and Development (OECD) | Luxembourg | agreements | legislation | withholding tax | Austria | Germany | Switzerland | G20 | standards | regulation | Financial Action Task Force (FATF) | European Union (EU) | services | Compliance | Europe | Tax

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