Swiss tax treaties could open doors for further crackdowns

In the midst of the eurozone crisis, shrewd Swiss diplomats are racing to complete a patchwork of tax treaties to keep the EU away from its banking system. The negotiations for renewed double taxation treaties, known as Rubik agreements, have arrived alongside recent European crackdowns on undesirable tax avoidance and evasion.

The Rubik treaties allow Switzerland to preserve its banking secrecy, whilst taxing foreign nationals on behalf of their native country. There is, however, a clause for surrendering limited information when prompted by a valid foreign investigation into tax evasion.

In the case of Sweden, the Rubik treaty replaces an earlier double taxation agreement dating back to 1965. It enables Switzerland to tax various types of income and capital gains on behalf of Sweden, allowing for a discount on the proportion of tax to be paid in Switzerland.

The agreement also allows Swedish authorities to request certain information as part of an ongoing investigation into evasion of the aforementioned taxes. It does, however, explicitly forbid unsubstantiated requests, described as "fishing expeditions."

The changes are currently pending parliamentary ratification and are proposed to be written into Swedish law. Notably, the Swedish Ministry of Finance has announced that some aspects of the treaty will be applied retrospectively.

The UK signed a similar tax treaty in October 2011, to be included in the Finance Bill 2012. Additionally, while Germany reached a double taxation agreement last autumn; this is still being discussed at parliamentary level and risks being blocked by the opposition.

Too little, too late?

Owing to its shielded banking system, Switzerland remains popular as a tax haven and is believed to hold billions of euros in hidden assets waiting to be reconciled with their native coffers. Despite Swiss efforts to alleviate increasing criticism and pressure from the EU, the secrecy of its banking system remains a controversial topic.

This is particularly the case in France, where an impending presidential election, with full public scrutiny of candidates, has led to an outright rejection of the Swiss tax courtship. The Rubik treaty has been criticised as recognising tax evaders, and concerns have been raised whether Swiss bankers can really be trusted to reveal their clients' tax secrets. With a public opinion fuelled by the post-Lehman crisis, no politician wants to be seen cutting a sweet deal with the Swiss.

Nonetheless, the Swiss would know that diplomacy is all about timing. With European eyes fixed on the debt crisis, and three strategically important countries more or less on board, Switzerland might just be able to keep the pressure off its banking system.

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• Topics
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