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Switzerland and Other Tax Havens Under Intense Scrutiny

Written by:
Guest
Published on:
Mar/13/2009

(Reuters) - Switzerland, Austria and Luxembourg all sought ways on Friday to fend off a global crackdown on tax evasion by making concessions on bank secrecy.

The trio held talks through the night with the Organization for Economic Cooperation and Development (OECD), which sets international standards for tax and data sharing and compiles a blacklist of non-compliers.

Following are questions and answers on their moves and how they compare to demands by other governments.

WHAT DID THE THREE AGREE TO?

The three countries agreed to fully adhere to the OECD's Model Tax Convention's Article 26.

The convention provides for an exchange of information between tax authorities on request if there is probable cause for tax evasion, but prohibit so-called "fishing expeditions" and do not demand automatic reporting of foreigners' holdings.

WILL THIS BE ENOUGH?

The changes go some way toward more cooperation with foreign tax authorities, even though they still fall short of the G20's and EU's key demand -- automatically sharing foreigners' account information.

WHAT CHANGES FOR SWITZERLAND?

The decision today goes to the legal root of Switzerland's lack of cooperation with other countries -- the distinction between tax fraud and tax evasion.

Under Swiss law, tax fraud is a criminal offence that involves forging documents to hide income from the tax man. Tax evasion, which is defined as not fully declaring one's income to the Swiss tax authorities, is an administrative offence, punishable with a fine only.

The key change is that Switzerland will now cooperate in cases of suspected tax evasion too, at least once double taxation agreements are renegotiated with other countries.

Previously, the world's biggest offshore center would only cooperate with foreign authorities when they could prove tax fraud, which has hindered U.S. access to client data of Switzerland's biggest bank UBS in a tax probe.

Renegotiation of double tax agreements could take time. Switzerland also said it could seek an amnesty for existing clients.

WHAT CHANGES FOR LUXEMBOURG?

Luxembourg had a similar distinction as Switzerland's between less grave tax offences, which would be prosecuted only by tax administrations, and criminal tax fraud, and it used to cooperate only in the criminal cases.

 

The Duchy will now in principle also share information about lesser tax offences, but it will retain the right to judge whether the evidence foreign authorities present is good enough.

WHAT CHANGES FOR AUSTRIA?

Not much. Austria already provided information on foreign account holders on request, and it did not distinguish between tax evasion and tax fraud the way Switzerland and Luxembourg did. Its non-compliance was therefore less severe.

But cooperation with Germany in particular -- the main source of foreign deposits in Austria -- was hampered by an Austrian court decision made after a German sued Austria that restricted this exchange in most circumstances.

The country will now restart talks with Germany to fix laws and procedures to ease cooperation again by removing the flaws that caused the court decision.

HOW MANY FOREIGN ASSETS ARE HELD IN THE COUNTRIES?

Foreign-owned assets in Swiss banks are estimated to amount to $2 trillion.

Assets under management with Luxembourg-based investment funds are around 1.6 trillion euros, and deposits at Luxembourg-based banks are 279 billion euros, but the Duchy does not give a breakdown of how much of that is owned by foreigners.

In Austria, foreigners have deposited 42.8 billion euros with banks, half of which comes from German citizens and companies. Foreigners hold 22.5 billion euros in securities in Austrian accounts.

(Reporting by Boris Groendahl; Editing by Erica Billingham)

 


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