Nick Shaxson ■ Switzerland seen backing down on supporting tax haven USA


A curious love-hate financial relationship

In July we wrote a blog entitled Luxembourg backing down on supporting tax haven USA. Now it’s Switzerland’s turn.

This concerns the OECD’s Common Reporting Standard (CRS,) a global scheme to share banking information. The United States isn’t a participating jurisdiction: it has its own FATCA project, which as we’ve remarked before, is good at ferreting out US taxpayers overseas, but provides relative little information in the other direction to help other countries enforce their own tax laws. Making the United States a giant tax and secrecy haven.

For a while, Luxembourg and Switzerland had been insisting that Tax Haven USA is a participating jurisdiction. In a nutshell, their financial industries wanted this because the CRS says that you are supposed to ‘look through’ certain investment entities and report their beneficial owners, if that entity is not in a ‘participating jurisdiction’ in the CRS. If the USA gets classified as a ‘participating jurisdiction’ then those Swiss financial players can chuck their tax-evading stuff into U.S. investment entities and the ‘look-through’ to the beneficial owners won’t happen.

Recently, the influential conservative Neue Zürcher Zeitung said that

“The US will now be excluded from the Swiss definition of [a participating jurisdiction] as Swiss television reported, and as the federal government confirmed.” 

This follows a challenge in the Swiss parliament to this effect.

Not only that, but it’s just been shown to us that the CRS itself makes it clear that countries have to reassess whether participation in the CRS is genuine. The CRS handbook says on p20:

“This effectively presumes commitments will be delivered upon and suspends the application of the look through provision for Investment Entities . .  Reporting Financial Institutions would not be required to apply the due diligence procedure . .  This of course should be revisited in the event commitments are not delivered on. A jurisdiction adopting this approach should make a statement that its list of Participating Jurisdictions will be re-assessed and updated no later than 1 July 2017, based on whether the listed Participating Jurisdictions have actually delivered on their commitment. A removal of a jurisdiction from the list of Participating Jurisdictions would then trigger an obligation on Reporting Financial Institutions to apply the due diligence procedures. . .”

In black and white. Not only is Switzerland seemingly planning to row back on its subversive pro-tax haven USA stance – it seems it has no choice. And in any case, it was always curious for a country whose financial secrecy sector has been so effectively targeted by the U.S. Department of Justice to then go out and support the cause of Tax Haven USA – particularly when the US-Swiss relationship is governed by an unusually restrictive “Model 2” arrangement which is especially skewed against Switzerland receiving any useful information from the U.S.

This appears to be progress. Having pointed all this stuff out ourselves, we hope we’ve been influential in shaping the debates in Switzerland.

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