Switzerland: Universal Wealth Tax Could Save Bank Secrecy

As the global economic debacle continues to escalate, more and more frankly whacked out ideas are coming to the forefront.  I wrote about one of these ideas—a "tiny tax" on all foreign exchange transactions—a few weeks ago.

Now, the Swiss Bankers Association —an organization that should frankly, know better—has come up with an even more revolutionary proposal.  It's for a universal withholding tax to begin in Switzerland, but that could gradually be expanded to other international financial centers.

Here's how it would work.  When opening an account, a depositor would present the Swiss bank proof of residence in a specific country.  (Banks in virtually all countries already require such proof.)  Then, the Swiss bank would levy a withholding tax equivalent to whatever tax is in effect in the client's home country.  The tax would apply to all types of income and cover both individuals and legal entities. 

Once levied, the bank would transfer the money to the tax authorities in the client's home country.  However, the bank would not identify the client, unless home country tax authorities made an inquiry complying with Swiss law.  In this manner, the Swiss claim, the system would preserve bank secrecy, yet eliminate the tax evasion many high-tax countries claim is pervasive among Swiss bank depositors.

I can understand why the Swiss Bankers Association made this proposal.  But, I believe they fail to understand the actual motivations of high-tax countries to eliminate bank secrecy in Switzerland and other offshore jurisdictions.

It's true that the OECD, the Obama administration and other global busybodies claim that wealthy taxpayers use offshore jurisdictions with bank secrecy to evade hundreds of billions of dollars in taxes each year.  The problem is that that the politicians who repeat this allegation don't have a shred of evidence to prove it.  No less an authority than IRS Commissioner Douglas Shulman calls these estimates "wildly overstated."

No, this effort has very little to do with reclaiming revenues from abroad—although I'm sure high-tax countries won't send it back .  They're much more interested in automatically obtaining detailed account information of individuals who invest abroad.  Once this is in place, OECD country tax administrations can then demand provisions that make it just as easy to levy against assets in a foreign account as in a domestic account. 

The Swiss Bankers Association proposal plays into the hands of high-tax governments and the OECD.  In the unlikely event the OECD accepts it, it won't be the end of demands for enhanced information exchange provisions.  Instead, it will be one more nail in the coffin for bank secrecy.

Copyright © 2009 by Mark Nestmann

Comments

[Jeff]

History has shown the policy of appeasement rarely works and often only encourages more aggression.

[Michelle Boudreau]

Banks secrecy is a question with respect to financial information and report as the main resource of banks .