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Swiss Bankers Welcome Formation Of Tax Expert Group

by Ulrika Lomas, Tax-News.com, Brussels

22 January 2014


Christoph Gloor, President of the Swiss Private Bankers Association (SPBA), has welcomed the Swiss Federal Council's decision to establish a new expert group, tasked with addressing outstanding core issues, such as strengthening the international competitiveness of the financial sector and securing and improving access to foreign markets.

Despite the fact that the Confederation has drawn up many reports and strategies over the course of the last few years, all aimed at securing the future of the Swiss financial center, and all of which are full of "good intentions," the Government has failed to resolve two vital concerns raised four years ago, Gloor pointed out. The Government's efforts and focus have been on guaranteeing future crisis resistance and the financial integrity of the financial center, rather than on improving market access and bolstering international competitiveness, Gloor maintained.

While welcoming as positive the formation of a new expert group, led by Aymo Brunetti, Gloor nevertheless made clear that time is of the essence, warning that a solution must be swiftly found to these "existential questions." There must be absolute impartiality and no taboos, Gloor stressed.

During the course of his address, the SPBA President highlighted the various shortcomings of the financial center tax regime. Here, Gloor emphasized that the financial sector has for years flagged up the serious competitive disadvantages of the Confederation's stamp tax. Furthermore, Gloor underscored that the withholding tax system has become outdated and increasingly disadvantageous, especially given that Switzerland's banking secrecy is under threat.

There needs to be "intelligent and proactive" adjustments to the financial center's fiscal framework, using "dynamic models" to avoid petrification of the tax system, Gloor noted. Up until now, the Government has steadfastly placed its own needs and interests ahead of others, assessing potential reforms on the basis of whether or not any revenue shortfall could be offset in full. However, the Government has failed to consider the notion that lower taxes might actually increase tax yield, Goor maintained, calling for a radical re-think of how the possible impact of envisaged reforms is evaluated.

Turning his attention to regulatory matters, Gloor likened Swiss financial market law to a large construction site, with banks in the Confederation facing radical changes to their legal framework, due notably to the lifting of traditional banking secrecy, to the acceptance of group requests, and to implementation of the "problematic" US Foreign Account Tax Compliance Act (FATCA) program.

Moreover, banks are already gearing up for additional changes, resulting from fresh negotiations between Switzerland and the European Union (EU) on a revision of the bilateral taxation of savings agreement, and following the drafting of international standards on automatic exchange of information (AEI), Gloor emphasized, noting that these adjustments will prove a major challenge for all financial center actors in Switzerland, although above all for small- and medium-sized banks in the Confederation.

It is no longer a question of which bank can offer its customers the best service or which bank best meets its customers' needs, but instead it is a matter of which financial institution has the means with which to ensure full compliance with the legislative requirements of supervisory authorities, Gloor pointed out, describing the situation is far from satisfactory.

While conceding the importance of ensuring that Switzerland's regulatory framework is comparable to that in place in other key international financial centers, Gloor nevertheless urged the Government to seek "equivalence" of standards rather than constantly striving for perfection and succumbing to the temptation of adding a so-called "Swiss finish."

Finally, Gloor underscored the importance of securing market access. The belief that Swiss banks can continue to serve their European customers from Zurich, Geneva, Basel or Lugano is simply an "illusion," the SPBA President argued, stating that even maintaining the status quo will require serious effort.

Alluding to the EU as Switzerland's most important external market, Gloor referred to the many unknowns and therefore concerns in terms of future access to the European market. Here, Gloor cited the content of the future Markets in Financial Instruments MiFID II Directive, currently being finalized in "trilogue" between the European Parliament, the European Council, and the European Commission, explaining that as a result of the new directive, access conditions to EU clients will be significantly tougher in the future. Banks in third countries, such as Switzerland, will be required to have at least one branch in the European Union, Gloor posited.

Further, Gloor cited other unknowns, namely the equivalence of Swiss legislation, to gain acceptance by the EU, and the durability of a legal framework. The SPBA is firmly of the belief that a bilateral financial services agreement will have to be put in place, Gloor said, underscoring that this is the only option available to guarantee legal certainty. Negotiating such an accord with the EU will prove difficult, however, Gloor acknowledged. Welcoming the Federal Council's decision to resume talks on improving institutional relations with the Union, Gloor ended by underlining the need for clarification.

Echoing this view, SPBA Vice President Nicolas Pictet made clear in his keynote address that market access is of prime importance for wealth management, as an export industry. For Switzerland, access to the European market is of particular importance, Picted noted, while pointing out that market access to other countries could pose a problem in the long term.

According to Pictet, the risk of Switzerland losing access to the EU market is considerable, from a revenue, employment, and know-how perspective.

Pictet revealed that the financial center in Switzerland currently serves to generate revenues estimated at between CHF14bn (USD15.3bn) and CHF18bn annually (in direct and indirect taxes), amounting to between 12 percent to 15 percent of federal, cantonal, and communal tax revenue. Of this figure, 10 percent flows from the banking sector, while over half is derived from wealth management, he continued. On a conservative basis, around 15,000 jobs would be at risk, he warned, emphasizing that it is therefore of vital importance that Switzerland secures and strengthens market access.

Concluding, Pictet advocated that Switzerland continue negotiations with the EU to find a solution to longstanding institutional questions and to discuss a financial services agreement. In return, the SPBA are prepared to adopt automatic information exchange in tax matters as well as existing and future Community law (Aquis Communautaire), he said.

TAGS: compliance | Foreign Account Tax Compliance Act (FATCA) | tax | European Commission | tax compliance | tax avoidance | interest | FATCA | law | banking | financial services | legislation | banking secrecy | withholding tax | stamp duty | Switzerland | United States | tax reform | construction | standards | individual income tax | European Union (EU) | services | Compliance | Europe | Tax | Tax Evasion

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