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Switzerland: Country and Foreign Investment

Executive Summary

'The Most European Country' - But Sui Generis

Nowhere else is quite like Switzerland. It likes to call itself 'the most European country', yet it has stayed outside the European Union since Charlemagne. In several of its famous referendums, as ancient as they are ultra-modern, it has refused EU membership, most recently in 2001, by a majority of 71%. However, two sets of 'bilateral agreements' with the EU are gradually bringing Switzerland within the EU in all but name.

Switzerland doesn't lack confidence. A member of the OECD, and probably the most secure member financially, it was happy to defy the majority of members that voted for a raft of high-faluting 'measures' against unfair tax competition in December 1999. Then in April 2000 it surprisingly agreed with an OECD declaration aimed at securing information exchange in the interests of tax harmonisation - but a deadpan banking supervisor announced immediately afterwards that Switzerland was in compliance with the OECD's standards already.

Economy Dependent On Economic Tourism

The service sector contributes more than 70% of Switzerland's economy, and much of that means financial services. 200,000 Swiss jobs are in banking, which represents 5% of the whole Swiss workforce, and they are not the worst paid ones. Switzerland is said to be the world's biggest centre of private banking, with more than a third of all private wealth based there. Swiss banking assets exceed three trillion Swiss francs. This has come about because of three main factors:

  • Switzerland is neutral - not just for a day, but permanently - thus, non-neutral figures with money to put away choose Switzerland because, long-term, it has proven a safe haven - a testament to financial brand-value, if there ever was one;
  • Switzerland has conducted ultra-conservative financial policies which have led to a consistent rise in the value of the Swiss Franc over decades;
  • Switzerland has statutory banking secrecy, which it has defended stoutly against the massed tax inspectors of the Western world, while installing adequate defences against money-laundering.

In 2012, Switzerland's economy grew by 1.% (1.9% in 2011) following the economic slowdown in 2009 when the country found itself in recession with a decline in growth of -1.9% and an inflation rate of 0.5% (est.). Inflation was -0.7% in 2012 and 0.4% in 2011.

Switzerland's Lowtax Specialisations

Switzerland is not an offshore jurisdiction such as the Cayman Islands, or Jersey. It is nonetheless a low-tax jurisdiction, having a series of specialised corporate forms which can be used by international investors and multinational companies to reduce their tax bills to a significant extent.

The bad news is that, as a civil code jurisdiction, Switzerland tends to the bureaucratic, meaning slow and expensive.

The regular economy in Switzerland is moderately taxed, but locals have access to the tax-privileged company forms as much as foreigners, if they comply with the rules which broadly prevent any local business operations.

As an OECD, 'respectable' country, Switzerland has double tax treaties with more than 100 other countries.

The EU v. the Swiss

In the game of global tax harmonisation, Switzerland is a key player. Will bankers have to tell tax authorities about their clients? Will tax avoidance become a crime? Will the world's finance ministers gang up against the honey-pot countries?

No-one knows the answers; but it is sure that Switzerland, as probably the richest and most successful of the havens that attract rich people on the run from their wives and tax inspectors, or just seeking good returns, will be the bell-wether of the flock.

Other than as regards tax, Switzerland is slowly but surely moving towards the EU. But during 2001 and 2002, and despite the events of September 11 in the US, the Swiss steadfastly refused to give in to EU pressure over disclosure of information on savings interest, thus threatening the EU's Savings Tax Directive with its plans for information exchange. In January, 2003, however, Switzerland finally negotiated an acceptable withholding tax regime with the EU, allowing Finance Ministers to reach a heavily-fudged compromise Savings Tax Directive package. After last-minute haggling by Italy and Belgium, the Directive entered into force in July 2005.

A new front opened in the long-term war against Swiss banking secrecy in early 2009 when the G20 and the OECD placed Switzerland on the 'grey' list of jurisdictions which did not conform to required standards of transparency. Switzerland had in fact agreed to meet OECD standards of information disclosure, and is fighting back hard against this new affront to its treasured independence.

Within six months of inclusion on the 'grey' list, Switzerland signed twelve DTAs containing extended administrative assistance clauses. The country was subsequently removed from the 'grey' list and continues to sign amended DTAs with a host of countries. In September, 2010 the Swiss government adopted a new Ordinance on Administrative Assistance, which governs the requirements and details on exchange of information rules relating to recently signed tax treaties.

Switzerland still insists that request for information from other countries will be dealt with on an individual basis and, if the request is based on stolen data, no assistance will be given.

 

 

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