Banking Secrecy and

International Tax Issues

Switzerland‘s viewpoint
Contents

3 Introduction

5 The global crisis and its consequences

Situation
Conflicts of interest
Threat to prosperity

10 Switzerland and the world – a ranking

13 Banking secrecy

15 Swiss tax system
Basic principles
Tax system
Tax evasion and tax fraud
Administrative and mutual assistance

23 Tax competition

25 Tax at source versus information exchange

28 An OECD list with deficiencies

33 Unwelcome assets

35 Fighting fraud, corruption, and money laundering

39 International cooperation
International Monetary Fund
Financial Stability Board
OECD
Double taxation agreements

43 Glossary

1
“I want to see things
as they are. I have a
need for objectivity.
Therefore I have no
antipathy towards this
or that, but towards
error, preconceived
opinions, prejudice,
stupidity, exclusivity
and exaggeration.“
Henri-Frédéric Amiel (1821–1881), Philosopher
of Geneva

2
Introduction
What does freedom mean? What
does independence mean? And
what do these concepts have to do
with Swiss banking secrecy and tax
law? At first glance, it may be dif-
ficult to see a connection between
the one and the other, and yet there
is one. It is to be found in the basic
understanding of the direct demo-
cratic state, its bottom-up structure,
and the Swiss interpretation of citi-
zens‘ rights.
The Swiss historian Herbert Lüthy
once noted that the wealth of na-
tions harbours an invocation of hu-
man rights, an invocation of “the
clear and simple system of natural
freedom allowing everyone to pur-
sue his own interests, to dispose of
his work and his property as he sees
fit, to go and trade wherever he
wants, and to relieve the State from
the tyrannical and at the same time
unfulfillable obligation of assigning
activities to its citizens, monitoring
them, and guiding them in the alle-
ged common interest – individuals
serve the State much better in the
liberty of the market, even without
knowing or wanting to.“ This de-
scription expresses the liberal under-
standing of Swiss citizens.
According to Swiss understanding,
citizens do not live for the State.
They are not primarily taxpayers,
3
but rather free people. As free peo-
ple, they have a right to life, proper-
ty, and privacy. This is the context in
which banking secrecy exists. Bank-
ing secrecy protects the financial
privacy of citizens from unauthor-
ised access by third parties including
the State.
Banking secrecy does not provide
protection for any criminal activities,
whether committed by Swiss citi-
zens or by foreigners. Where quali-
fied evidence is provided, banking
secrecy can be lifted. Switzerland is
therefore willing to accept the stan-
dard of the Organisation for Econo-
mic Cooperation and Development
(OECD) on administrative assistance
in tax matters in accordance with
Art. 26 of the OECD Model Tax
Convention. Upon request and in
specific individual cases, it allows for
information exchange in cases of
tax evasion. However, Switzerland
will not permit comprehensive fi-
shing expeditions on its territory, eit-
her now or in the future.
With respect to the fight against
fraud, corruption and money laun-
dering, as well as defensive mea-
sures against unwelcome assets,
Switzerland already complies with
a very high standard that need not
shy away from international com-
parison and that in many aspects
serves as a model for other financial
centres. Keywords are: Comprehen-
sive customer identification, strict
rules against misuse, legal certainty.

Within the framework of internatio-

nal cooperation, Switzerland will re-
main an active partner willing to en-
gage in dialogue with all countries
and respect the special obligations
that come with being a strong and
competitive financial centre. At the
same time, Switzerland will strive to
maintain the rights of free people
and protect their privacy.

4
The global crisis and its
consequences
Situation
A combination of market and go-
vernment failure in recent years has
led to a financial crisis. The collapse
of US real estate prices in 2007 was
the trigger for a global conflagrat-
ion that exposed numerous misgui-
ded developments in the global fi-
nancial and banking system in the
USA and elsewhere. These included
the too low equity of many major
banks, poor risk management, faul-
ty incentive structures in remunera-
tion systems, and overly expansive
monetary policies.
The financial crisis caused radi-
cal upheavals in the banking world
in many countries resulting in col-
lapses, takeovers, and the nationa-
lisation of many hitherto renowned
banks. States, governments, and
central banks were forced to make a
wide range of interventions to pre-
vent a collapse of the global and
national financial systems. A fragi-
le stabilisation of the global finan-
cial system has been achieved, but a
flashover to the real economy could
not be prevented thus leading to a
worldwide recession.
In its World Economic Outlook of
April 2009, the International Mone-
tary Fund projects that global tra-
ding volume will decline by 7.7%
this year and will increase only slight-
5
ly by 1.3% in 2010. The World Trade
Organisation predicts an even more
dramatic decline of 9% in 2009.
States are responding to the finan-
cial and economic crisis in diffe-
rent ways. The greater the econ-
omic impact, the more extensive
the government‘s rescue and econ-
omic stimulus programmes. Despi-
te the many differences in economic
and political conceptions, the mea-
sures taken by many countries have
one similarity: Existing public debt is
again being increased extensively. In
the international context, the mea-
sures taken by Switzerland are mo-
derate; whether further measures
become necessary will depend on
how the crisis progresses.
p  See Public debt p.7
Conflicts of interest
The global crisis is forcing all states
to economise or to find new sour-
ces of revenue consequently aggra-
vating distributive disputes among
them. In these disputes, every state
seeks to defend its own interests,
protect the strengths of its own na-
tional economy and compensate
for losses by wresting market share
from other manufacturing and fin-
ancial centres.
By applying pressure of various
kinds, countries seek to bring cross-
“To see the world
through the eyes of
others, the eyes of
allies and of oppo-
nents – and conside-
ring their interests
– is an art that can be
learnt only in dialo-
gue with people from
other cultures.“
Helmut Schmidt, former Federal Chancellor of
Germany

6
Public debt

Public debt in relation

to GDP in %

2007 Change
2010 (estimate) in %

Italy 113
115.9 + 2.9
USA 73.2
82.5 + 9.3
France 72.5
79 + 6.5
European Union 70.7
74.7 + 4.0
Germany 64.8
66.3 + 1.5
UK 58.7
69.4 +10.6
Switzerland 48.1
47.3 – 0.8

Source: OECD

border assets currently managed ment, it is not surprising that it also

by competitive financial centres of
smaller countries back into their
own spheres of influence. The goal
is to strengthen the domestic fi-
nancial centre and satisfy the fis-
cal hunger of the large countries.
Given the significant international
position of the Swiss financial cen-
tre in cross-border asset manage-
is being targeted.
p  See Asset managers p.8
Threat to prosperity
The main focus of public interest is
currently on the disputes between
global financial centres and their
governments. However, compara-
ble processes are also under way

7
The largest asset managers in the world
Share of assets under management in international
private banking (2005)
Others 6%
Hong Kong 3%
USA 7%
Singapore 7%
Caribbean 12%
Luxembourg 14%
among manufacturing locations and
major export countries. It is simply
that the public is less aware of these
developments even though the con-
sequences for industrial production
are no less serious.
In this field, there has been a fun-
damental shift of power in recent
years from industrialised countries
to emerging markets in Eastern Eur-
ope, the Middle East, Southeast
8
Switzerland 27%
UK and
the Channel Islands 24%
Source: Boston Consulting Group 2007
Asia, and particularly the BRIC coun-
tries, Brazil, Russia, India, and Chi-
na. This can be seen in the diverging
GDP growth rates. This shift in
growth, which has been under way
for a long time, is now being over-
laid and aggravated by the global
crisis. It is possible that the global
crisis will cause the surge of large
emerging economies to slow down
or stall in the next few years, but in
the long run the surge will continue
Real growth of GDP

Ten-year average from Forecast 2009

1997 – 2007 in % in %

Italy 1.6 -4.4

Germany 1.7 -5.6
Switzerland 2.2 -3.0
France 2.5 -3.0
UK 3.2 -4.1
USA 3.2 -2.8

Brazil 3.1 -1.3

Poland 4.7 -0.7
Slovakia 5.5 -2.1
Singapore 5.8 -10.0
Ukraine 6.2 -8.0
Russia 6.3 -6.0
India 7.8 4.5
China 10.5 6.5

Forecast dated April 2009

Source: The Economist /

IWF World Economic Outlook

and change the distribution of pro-

sperity among nations.
p See Real growth of GDP
 

9
Switzerland in the world
– a ranking
192 states are currently members of the United Nations: 192 large,
medium-size, small and very small states. In terms of area and pop-
ulation, Switzerland is one of the small countries of the world, but in
terms of its economic influence, the picture is completely different.
In many areas, Switzerland ranks internationally alongside medium-
sized states.

Direct in- GDP

Private assets vestment in Gold reserves, by purchasing Trade
under manage- Government companies market value power per surplus
ment in $ efficiency abroad in $ in $ capita in $ in $

1 3 4 5 7 8

1 20 40 60 80

10
 Market Strength
Index of capitalisation Currency of national Number
economic of stock ex- Exports reserves economy of tourist Popula-
freedom change in $ in $ in $ (GDP) in $ arrivals tion Area

9 13 14 18 20 28 93 136

100 120 140 160 180

11 Source: The Economist, 2009

“The small state exists
so that there is a spot
on earth where the
highest possible share
of people are actual-
ly citizens in the true
sense of the word.
For the small state has
absolutely nothing
other than a true and
real liberty that fully
makes up for the en-
ormous advantages of
the large state, even
their ideal of power.“
Jacob Burckhardt (1818–1897), Swiss cultural
historian

12
Banking secrecy
For some, Swiss banking secrecy is a
Swiss trademark, as impregnable as
a fortress. For others, it is a dubious,
even harmful institution that must
be fought politically. Both percep-
tions collide with reality – the first
standpoint is positively exaggerated,
while the second is negatively char-
ged. The reality is different.
For 75 years banking secrecy has
been expressly incorporated in Swiss
law – and equally long have been
the domestic and external politi-
cal controversies. The peculiarity of
banking secrecy is linked closely to
the liberal Swiss understanding of
the State and civil liberties. In Swit-
zerland, the State is there to serve
the citizen. The legal status of the
citizen is correspondingly solid.
Applications for Swiss mutual assistance with a
tax background
2006 102
2007 116
2008 89
Source: Federal Department of Justice and Police
Each year Switzerland receives between 1600 and 2000 fo-
reign applications for mutual assistance. Only a small percent-
age concern tax offences, the rest are related to other topics.
13
Banking secrecy protects the finan-
cial privacy of banking clients. It
does not protect the secrets of the
bank, but rather the secrets of the
client, which is why “bank(-ing) cu-
stomer secrecy“ would be a more
appropriate term. It grants the cli-
ent a right to confidentiality and
imposes a duty of confidentiality
on banks vis-à-vis third parties and
auth­orities. Bank employees who
violate that duty are liable to prose-
cution.
There has always been a limit to
Swiss banking secrecy: It does not af-
ford protection to anyone commit-
ting a felony or misdemeanour. As
such, money launderers, defrauders
or terrorists, or indeed other persons
suspected of corruption or other seri-
ous offences, have nowhere to hide.
In cases of well-founded suspicion
Switzerland offers mutual assistance
to its international partners, but in
practice this possibility is seldom
called upon. Only a small proportion
of the applications for mutual assi-
stance relate to tax offences.⇒
p  See Applications for Swiss mutual
assistance p.13

Banking secrecy can also be lifted in

cases of tax fraud. Tax evasion, how-
ever, is different: Under Swiss law,
tax evasion is not a criminal offence,
but an infraction. According to Swiss
legal interpretation, infractions do
not justify the lifting of banking se-
crecy. Until now, this rule has ap-
plied to the Swiss population as well
as to individuals living abroad.

The Federal Council is not blind to

the fact that, against the backdrop of
the financial and economic crisis, the
importance of cross-border coopera-
tion in tax matters has increased. The
Swiss government is willing to chan-
ge the rules for foreigners residing
outside Switzerland and also provide
administrative assistance henceforth
in cases of tax evasion in specific, in­
dividual cases. Switzerland has the-
refore withdrawn its reservations to
Article 26 of the OECD Model Con-
vention with respect to administrative
assistance in cases of tax evasion.

14
Swiss tax system
Basic principles
For the Swiss political system, direct
democracy, federalism, neutrality,
and the country‘s linguistic and cult-
ural diversity are central. This has
consequences for the political struc-
ture of the State: Decisions are made
involving the citizens because the
Swiss political system is built from
the bottom up.
The Swiss people have also reta-
ined fundamental rights in terms of
tax law. In many cases, it is not the
government or parliament, but the
people who decide whether taxes
should be lowered or raised at the
local, cantonal or federal level, and
whether new taxes should be intro-
duced.
The participation of the people re-
sults in the tax burden in Switzerland
being moderate overall compared
with other states, both in terms of
direct and indirect taxes. Moreover,
intensive tax competition takes place
at both the local and cantonal level,
which has a moderating effect on
the tax burden, and forces the State
to be economical in its expenditure.
Anyone examining public services in
Switzerland can see that the Swiss
often receive better services for their
money than citizens of other coun-
tries. In terms of tax honesty, various
15
surveys demonstrate that the Swiss
tax system performs very well in in-
ternational comparison. Experience
shows that the scale of a country‘s
underground economy relates close-
ly to the scale of tax evasion.
p  See Underground economy p.17
The small scale of the underground
economy in Switzerland compa-
red with other countries shows
that, while this type of tax evasi-
on exists, it is by no means one of
the country‘s major problems. This
is quite different for countries with
a strikingly larger scale of under-
ground economy than Switzerland.
The table on underground econo-
mies shows a significant extent of
tax evasion activities in many coun-
tries which have no connection with
Switzerland or with Swiss banking
secrecy, but are in fact entirely home
grown.
Tax system
From a technical perspective and
with regard to the complexity of
the rules, the Swiss tax system does
not differ significantly from those
of other countries. It is comprehen-
sive poviding for taxes on income,
wealth, capital, profit, consumpti-
on, etc. To that extent, the criticism
that Switzerland is a tax haven is not
valid. Tax havens are states or ter-
ritories which levy no taxes or only
very low taxes on income and assets:
That is not the case in Switzerland.
The Swiss taxation system follows
the financial principles required by
any modern tax system. It should
– cover the financial needs of local,
cantonal and federal government
– distribute the tax burden according Tax evasion and tax fraud
to economic capability
– enforce tax law
– be flexible enough to permit ad- Swiss distinction between tax eva-
justments necessary according to sion and tax fraud. A regular com-
the economic situation.
The principles of Swiss tax law are
enshrined in the Federal Constitut-
ion. These include the following le-
gally protected interests:
– Equality before the law
– Guarantee of ownership
– Economic freedom
– Tax equity
– Prohibition of double taxation
– Prohibition of unjustified tax
agreements
Two approaches prevail among the
tax systems of OECD member states.
Some countries rely heavily on indi-
rect taxes. Most EU countries have a
clear preference for value added tax
and others for consumption taxes,
while direct taxes play a less impor-
tant role. Countries such as the USA,
16
Japan and also Switzerland take a
different approach, focusing more
on direct taxes.
In practice this has resulted in VAT
levels of EU countries being about
three times higher than in Switzer-
land.
In recent years a number of coun-
tries have vehemently criticised the
plaint has been that this distinction
does not exist in other countries and
that no-one can understand it.
From a Swiss perspective, it should
be noted that other countries do
make a distinction between tax
fraud and tax evasion. The differen-
tiation can easily be justified both
in practical and legal terms. Fraud
presupposes criminal intent, where-
as evasion can result from over-
sight. Those sceptical of such a view
should consider that in modern
states, tax law has become so com-
plex and places such a burden on
the untrained citizen – almost every-
one – that it is easy to trip up on any
number of stumbling blocks through
lack of knowledge or understanding,
or simply because, for non-special-
ists, tax law is increasingly a myste-
ry in itself.
Underground economy as a percentage of GDP

USA 7.2
Switzerland 8.2
Japan 9.0
Austria 9.4
New Zealand 9.8
Netherlands 10.1
United Kingdom 10.6
Australia 10.7
France 11.8
Canada 12.6
Ireland 12.7
Finland 14.5
Germany 14.7
Denmark 14.8
Norway 15.4
Sweden 15.6
Belgium 18.3
Portugal 19.2
Spain 19.3
Italy 22.3
Greece 25.1

Average 13.9

Source: Friedrich Schneider, University of Linz (2007)

17
“To have intellect
means to know in
what way differing
things are the same,
and in what way
equal things vary.“
Anne Louise Germaine de Staël (1766–1817),
French Swiss author

18
For that reason, it is entirely normal,
useful and reasonable for a legal sy-
stem to judge individual criminal ac-
tivities according to their gravity and
provide accordingly for different ty-
pes of sanction. In so doing, every
state is free to make the distinction
in a manner corresponding to its le-
gal tradition and as it sees fit. The
solution adopted by Switzerland en-
joys direct democratic support.
In the context of cross-border tax-
ation one can ask whether the
Swiss solution is appropriate or
not. In cases where a person living
abroad has assets in Switzerland,
should Switzerland‘s law continue
to apply exclusively, or should the
law applicable in the foreign coun-
try in question be taken into ac-
count to a greater extent? This has
been the subject of debate in Swit-
zerland in the past. Given the incre-
asing interlinking of financial mar-
kets, international cooperation in
tax matters has steadily been ex-
panding for some time, whether
through the Agreement on the Ta-
xation of Savings Income with the
EU, the Anti-Fraud Agreement, or
numerous bilateral double taxation
agreements, which usually contain
provisions for administrative assist-
ance.
19
Administrative and mutual
assistance
In international relations Switzer-
land offers two methods of ex-
changing information on tax and
duty fraud: Administrative as-
sistance and mutual assistance.
Within the framework of admini-
strative assistance, and based on
double taxation agreements, infor-
mation can be exchanged between
the authorities of two countries,
and this has long been the case
between Switzerland and the USA.
Recently administrative assistance
has also been agreed with other
states, especially those of the EU.
Following the precedent decision
of the Swiss government of March
2009, Article 26 of the OECD Mo-
del Convention may now be ap-
plied. The exchange of information
with the foreign tax administration
takes place following a specific and
justified request. Administrative as-
sistance can be provided even when
criminal proceedings have not been
initiated.
A distinction has to be made bet-
ween administrative assistance and
mutual assistance. In the case of
mutual assistance, it is not the tax
authorities, but the justice autho-
rities of the two countries that co-
operate. International mutual as-
sistance for the prosecution of tax
offences is based on bilateral mu-
tual assistance agreements. Mutual
assistance may only be granted in
pending criminal proceedings and
the information transmitted may
only be used in proceedings for tax
fraud. In mutual assistance pro-
ceedings for tax offences coercive
measures such as confiscation and
house searches as well as the lifting
20
of banking secrecy are all possible.
Switzerland has granted mutual as-
sistance in tax affairs since time im-
memorial. It is noticeable that cer-
tain countries demand ever new
possibilities of exchanging informa-
tion without first even having ex-
hausted those that already exist.
p  See Applications for Swiss mutual
assistance
Applications for Swiss mutual assistance

47 Germany

Italy
Others 198 41

21 UK

Source: FDJP

21
“In matters of style,
swim with the current;
in matters of principle,
stand like a rock.“
Thomas Jefferson (1743–1826), third President of
the United States of America

22
Tax competition

Tax competition is controversial, es- ney than necessary from the pockets
pecially among economists. Many of its citizens. Further competition
states, however, are not overly con- has proven to be the best way of de-
cerned with the academic pros and veloping new, citizen-friendly solu-
cons and practise tax competition tions in the field of taxation.
anyway – some more openly, others
more discreetly. Switzerland is an open country and
has built its prosperity not least on
Having existed since the 19th centu- that fact. It therefore can have no in-
ry tax competition is not a product terest in disadvantaging itself in the
of globalisation. However, it cannot international competition among lo-
be overlooked that it has gained in cations – even if this would be wel-
importance over the last 30 years, comed in some places. Switzerland
this despite persistent efforts by the would disadvantage itself if it were
OECD and some larger states, which to follow the path of harmonised
consider competition in the fiscal higher costs of taxation pursued by
field almost exclusively under the various countries. Switzerland con-
heading of “harmful tax practices“ siders this path to be ineffective, re-
– “harmful“ being an extremely va- sulting as it would in a high loss of
riable political quantity, judged diffe- prosperity. In tax competition, Swit-
rently by every country. zerland compares itself only with the
best.
Switzerland has a relaxed attitude
towards tax competition, as do
many other smaller and medium-
size countries. The majority of the
Swiss population accepts tax compe-
tition, not only as a theoretical prin-
ciple, but also in everyday practice.
Switzerland has known domestic tax
competition for decades. This home
experience demonstrates that tax
competition is a useful instrument
for limiting economic and political
power. It disciplines financial admini-
stration, forces the State to be
efficient and not to take more mo-

23
“All great things are
simple, and many can
be expressed in single
words: Freedom,
justice, honour, duty,
mercy, hope.“
Winston Churchill (1874–1965), British Prime
Minister

24
Tax at source versus
information exchange
Within the framework of its efforts
to fight harmful tax practices, the
European Union adopted a directive
on the taxation of savings income
in 2003. With this the EU intends to
secure the taxation of cross-border
interest payments to natural perso-
ns. In order to prevent EU taxpayers
from evading the directive by pla-
cing assets outside the EU, the EU
decided to include in
its tax system the independent and
associated territories of the UK and
the Netherlands, as well as Swit-
zerland and further third countries.
The EU taxation of savings income
is based on the coexistence mo-
del, that is the existence side by
side of automatic information ex-
change and tax at source. Belgium,
Luxembourg and Austria chose tax
at source, and the other EU coun-
tries the automatic exchange of in-
formation.
Switzerland agrees that return on
capital should be reasonably taxed,
and has applied withholding tax for
decades accordingly. Although, in
its relationship with the EU, Swit-
zerland does not intend to become
a transit country for unpaid taxati-
on of savings income and is there-
fore willing to introduce equivalent
measures, it is decidedly against the
automatic exchange of information
as this would contradict the liberal
25
Swiss tradition and be detrimental
to the protection of the privacy of
the individual.
Switzerland has offered to collect
a withholding tax on interest which
Swiss paying agents transfer to na-
tural persons living in the EU. This
withholding tax forms the key ele-
ment of the Agreement on the Tax-
ation of Savings Income between
Switzerland and the EU. This agree-
ment provides for an increasing tax
rate: Initially 15%, then 20% and
from the seventh year 35%. A noti-
fication of interest can be presented
to the tax authorities of the state
of residence as an alternative to the
withholding tax, insofar as the in-
terest beneficiary agrees.
Since 2005, Switzerland has coll-
ected withholding tax for the EU
member states and subsequent-
ly remitted it to the correspondi-
ng countries. The procedure works
very well, is efficient and brings in
substantial sums for the contract
partners. ⇒
p  See Revenue from the Swiss tax-
ation of savings and Exchange of infor-
mation p.26/27
Switzerland is ready to enter into
discussion with the EU on how to
close any loopholes in the taxati-
on of savings income, although the
Revenue from the Swiss taxation of savings
income on behalf of EU countries

The Agreement on the Taxation of Savings Income provides for

increasing rates of withholding tax: 15% until June 2008;
20% until June 2011; and 35% thereafter.

United Kingdom
in CHF million

2005 12.9
2006 31.8
2007 40.2
Germany
in CHF million

2005 24.0
2006 103.3
2007 130.5
France
in CHF million

2005 15.1
2006 49.9
2007 61.9 Italy
in CHF million

2005 31.6
2006 102.9
2007 125.0

EU
in CHF million

2005 119.5
2006 402.5
2007 489.9
Source: FDF
26
Exchange of information: Number of notifications
and gross interest

The Agreement on the Taxation of Savings Income provides

for a choice. The persons concerned can choose to declare
the interest to the tax authorities of their country of residence
(exchange of information) as an alternative to having the tax
withheld in Switzerland (cf. the table “revenue“)

Notifications Gross interest in

CHF million

United Kingdom 2005 1 237 24.4

2006 1 854 110.4
2007 2 258 147.2

France 2005 629 1.6

2006 1 100 11.1
2007 1 301 17.0

Germany 2005 31 463 66.0

2006 48 900 656.2
2007 56 566 523.3

Italy 2005 247 2.4

2006 423 9.9
2007 474 11.5

Source: FDF

original purpose of the agreement
must not be forgotten. The willing-
ness to implement the OECD stan-
dards creates a new situation which
must be taken into account in the
event of changes to the Agreement
on the Taxation of Savings Income.
This is all the more important given
that in the meantime various EU
states have introduced settlement
taxes, the rates of which are some-
times significantly lower than 35%.
Switzerland considers that these
and other points must be addressed
in the upcoming negotiations.
Switzerland is also ready to consider
further bilateral Taxation of Savings
Income Agreements with important
partner states, should they so wish.

27
An OECD list with
deficiencies
The OECD has long concerned
itself with questions of internati-
onal tax competition and coope-
ration, and it has developed cor-
responding standards. As part
of this work, the OECD compiles
from time to time country lists but
the criteria are not always trans­
parent and fair. The same applies
to the classification of the coun-
tries, which in many cases ap­
pears arbitrary in substance and
reflects primarily the power-politi-
cal interests of the major states. If,
for example, the core criterion of
every banking and financial cent­
re, namely customer identification
(know your customer), was taken
into account, several of the highly-
­placed countries would suddenly
slip way down on the list.
The OECD list shown below da-
tes from 2 April 2009 and con-
tains those changes arrived at du-
ring the G-20 summit in London.
Switzerland is one of the founding
members of the OECD. In spite of
this, it was not informed about
the list drawn up at the London
Summit Conference. It was for
this reason that the Swiss govern-
ment protested to the OECD.
28
The list of 2 April 2009 differen-
tiates in relation to international
tax standards between three main
groups:
40 countries that have alleged-
ly substantially implemented the
standards
38 countries that accept the stan-
dards, but allegedly have not yet
substantially implemented them.
Within this category the OECD
makes a distinction between eight
“other financial centres“, among
which is Switzerland, and 30
further countries deemed to be
“tax havens“.
4 countries that allegedly have not
committed themselves to the stan-
dards.
The list of 2 April has been ad-
apted in the meantime. The four
countries in particular which were
originally assigned to the third
group have been moved to the
second group due to changes in
their legislation.
Europe
Russia

Denmark
United Kingdom
Russia
Isle of Man
Ireland Nether-
lands Poland
Germany
Belgium
Luxembourg Czech Republic
Jersey/Guernsey
Slovakia
Liechtenstein
Switzerland Austria Hungary
France
Italy
Monaco
San Marino
Andorra

Spain
Portugal
Greece

Gibraltar Malta

Central and South America and Caribbean

Bahamas

Turks & Caicos Islands

British Virgin Islands

Anguilla
US Virgin Islands
Cayman Islands Antigua &
Belize St. Kitts & Nevis Barbuda
Montserrat
Guatemala Dominica

Netherlands Antilles St. Lucia

Barbados
Aruba
Grenada St. Vincent &
the Grenadines
Costa Rica
Panama
An OECD list with Countries which allegedly do not adhere

deficiencies
to the international standards
Countries which have committed them-
selves to adhering to the international
standards, but which allegedly have not
implemented them substantially
Countries which have allegedly substan-
tially implemented the standards

Norway
United States Finland
Iceland Sweden
Canada

United States Turkey

Bermuda
Cyprus

Mexico

Liberia

Chile Uruguay South Africa

Argentina

30
 Pacific Ocean
Marshall
Islands

Nauru

Vanuatu Samoa

Niue
Cook
Islands

Russia

Korea Japan
China

Bahrain
United
Arab
Emirates
Philippines

Malaysia (Labuan) Brunei

Singapore
Seychelles

Mauritius
Australia

New Zealand

31
“The best way to
come to truth is
to examine things
as really they are,
and not to conclude
they are, as we
fancy of ourselves,
or have been
taught by others
to imagine.“
John Locke (1632–1704), English philosopher
and politician

32
Unwelcome assets
As mentioned earlier, Swiss banking
secrecy does not protect anyone
committing criminal acts. It also af-
fords no protection for assets stolen
by dictators, potentates, and other
politically exposed persons. On the
contrary, Switzerland has enacted
effective legislation to protect its fi-
nancial centre against such unwel-
come assets. Should a politically ex-
posed person nevertheless succeed
in moving unlawful assets to Swit-
zerland, effective rules exist to block
and confiscate the assets and to re-
turn them to the country of origin
in a transparent manner. Consistent
with this approach, Switzerland is
also active internationally in the
fight against corruption and unlaw-
fully acquired assets.
The phenomenon of assets of po-
litically exposed persons is global.
Such assets surface periodically in all
the major financial centres, whether
London, Frankfurt, New York, Sin-
gapore, Hong Kong, Zurich, or else-
where.
As a result of several spectacular
cases – Marcos, Abacha, Montesi-
nos – Switzerland has drawn les-
sons from its dealings with such un-
welcome assets and remedied past
omissions. On its own initiative and
under its own responsibility Switzer-
land has developed a comprehen-
33
sive defensive concept based on the
pillars of prevention and mutual as-
sistance, although it is mainly in the
field of prevention that Switzerland
has played a pioneering role in the
development of international stan-
dards.
The Swiss rules have since proven
themselves to be extremely effici-
ent and effective. Over the past 15
years, Switzerland has confiscated
approximately CHF 1.7 billion and
returned the money to the states
concerned – considerably more
than any other financial centre. It
appears that the financial centres
of larger states tend, for political
or other reasons, to block or return
dictators‘ assets selectively. In con-
trast, Switzerland has decided to
apply the law consistently. Switzer-
land and its institutions have the
means and the political will to iden-
tify unwelcome assets of dictators,
freeze them and return them to the
country of lawful ownership. Such
efforts reach their limits, however,
when the state in question does not
cooperate, which unfortunately oc-
curs relatively often.
On the international level, Switzer-
land will ratify the UN Convention
against Corruption before the end
of 2009. Moreover, it is working clo-
sely with the World Bank‘s Stolen
Assets Recovery Initiative, it has pro-
vided financial support to the Inter-
national Center for Asset Recove-
ry since its establishment, and will
continue to contribute ideas and
proposals in international bodies to
solve the problem of dictators‘ as-
sets.

34
Fighting fraud, corruption,
and money laundering
Fraud, corruption and money laun-
dering hinder economic trans-
actions, distort competition and
undermine trust among mar-
ket participants, which is why the
fight against corruption has been
near the top of the international
community‘s list of priorities for
many years. In the interests of a cle-
an financial centre, Switzerland has
introduced effective mechanisms for
uncovering unlawfully acquired as-
sets. Such mechanisms include pro-
cedures against money laundering.
Switzerland‘s defensive measures
cover all important aspects: aware-
ness raising, prevention, technical
cooperation, tough criminal sanc-
tions, mutual assistance and the
blocking and restitution of assets.
With this clear and consistent ap-
proach Switzerland has, over the
years, achieved results applauded
worldwide.
Switzerland is also at the forefront
of the fight against corruption at
the international level. Three con-
ventions form the basis for the fight
against corruption: the OECD Con-
vention on Combating Bribery of
Foreign Public Officials in Internati-
onal Business Transactions (1997),
the Criminal Law Convention of
the Council of Europe on Corrup-
tion (1999), and the United Na-
tions Convention against Corruption
35
(2003). Switzerland is a party to the
first two conventions; ratification
of the UN convention is expected in
the second half of 2009. At the fe-
deral level a working group is deve-
loping a harmonised policy for com-
bating corruption by including all
parties at various domestic levels as
well as society as a whole.
Switzerland has effective defensive
measures against money laundering
and terrorist financing at its dispo-
sal, and participates internationally
in combating cross-border financial
crime. The Anti-Money Laundering
Act requires that companies active
in the financial sector follow exten-
sive due diligence procedures. This
includes identification of the con-
tracting party, determination of the
beneficiary, and the obligation to
establish organisational measures to
prevent money laundering and ter-
rorist financing. In cases of suspicion
of money laundering or another fe-
lony, financial intermediaries must
notify the Money Laundering Repor-
ting Office within the Federal Office
of Police. The Anti-Money Launde-
ring Act applies to all financial inter-
mediaries and also contains rules for
the non-banking financial sector.
At the international level, Switzer-
land advocates efficient and econo-
mically sustainable defensive instru-
“Every law should be
clear, uniform, and
precise; to interpret
law is almost always
to corrupt it.“
Voltaire (1694–1778), French thinker of the
Enlightenment

36
ments and measures. It participates
actively in the Financial Action Task
Force (FATF) and regularly assumes
positions of responsibility, including
currently the co-chairmanship of se-
veral working groups. Switzerland
has already incorporated the revised
FATF recommendations into dome-
stic law, so that the Swiss defensive
measures correspond to internatio-
nal standards in almost all respects.

37
“Very small distinc-
tions sometimes give
rise to very great
differences.“
Marie von Ebner-Eschenbach (1830–1916),
Austrian poet

38
International
cooperation
For Switzerland as an open, export-
oriented economy, a stable interna-
tional financial system is of the ut-
most importance. The country has
therefore always contributed active-
ly to global financial market stability
and is willing to continue to do so.
Switzerland‘s contribution consists
of a prudent national policy and
active international participation.
Switzerland belongs to numerous
international organisations such as
the United Nations, the Council of
Europe and the Organisation for
Security and Cooperation in Europe.
Switzerland is not an EU member,
but enjoys close economic, political,
social, cultural and scientific ties.
Switzerland is home to many inter-
national organisations and Geneva
is the most important centre for in-
ternational cooperation worldwide.
Switzerland‘s involvement in inter-
national financial institutions is no
less intensive. The most important
forums for matters of internatio-
nal financial stability are the gover-
ning bodies of the central banks,
in which our country is represented
competently and pragmatically by
the Swiss National Bank. Also of im-
portance are the International Mo-
netary Fund (IMF) and the Financi-
al Stability Board (FSB), to which 12
countries with important financial
39
centres belong.
International Monetary Fund
Switzerland heads a constituency in
the International Monetary Fund.
Through its seat on the Executive
Board, Switzerland participates in
the innermost circle of the IMF. The
IMF has adopted a whole series of
financial aid packages intended to
defuse the current economic crisis.
As the crisis continues to become
more acute in emerging countries
an expansion of IMF resources is
required. Switzerland is willing to
show solidarity and participate in a
concentrated expansion of IMF re-
sources.
Financial Stability Board
Membership of the Financial Stabi-
lity Board gives Switzerland and the
Swiss National Bank the ability to
participate in the dialogue among
the most important financial cen-
tres of the world, and to contribute
the fruit of its experience. The FSB
is concerned with topics relevant to
stability as well as questions of fi-
nancial market regulation and su-
pervision. Together with the IMF,
the FSB is currently working on the
development of an early warning
system to identify approaching fi-
nancial crises. Switzerland supports
this work energetically, and is also
engaged in related work of the
Bank for International Settlements,
and in the international committees
of financial market supervisory aut-
horities.
OECD
Switzerland is one of the founding
members of the Organisation for
Economic Cooperation and Deve-
lopment, which is an important in-
ternational platform for the pre-
sentation of Swiss interests. In tax
questions, it is the most important
organisation worldwide. Switzer-
land benefits from the system of
“peer learning“ and can make its
view heard during the development
of common standards, which in the
OECD are normally adopted by con-
sensus. Numerous delegates from
the federal government and the
cantons take part each year in vario-
us committees and working groups.
Switzerland is engaged in topics
such as economic policy, financial
markets, structural policy, tax and
health questions.
Double taxation agreements
The Swiss economy has an extraor-
dinarily strong international orien-
tation. For this reason, the Federal
Council began many years ago to
conclude double taxation agree-
ments with countries important to
the Swiss economy. Such agree-
ments firstly make it easier for com-
40
panies from the contracting states
to engage in economic exchanges,
and they eliminate tax discriminati-
on and establish procedures for re-
solving certain conflict situations.
These agreements usually include
provisions on administrative assi-
stance, which regulate cross-border
cooperation between the particular
tax authorities.
Switzerland currently has 73 double
taxation agreements and seeks to
conclude further such agreements.
It also wants to improve the existing
agreements and to adjust them to
current developments. After mid-
March 2009, when Switzerland de-
cided to re-orientate its internati-
onal cooperation in tax matters, it
was obvious that this would affect
the double taxation agreements.
That is why the exchange of infor-
mation has been extended to indi-
vidual cases where a specific and
justified request has been made. In
April 2009 the renegotiation of the
double taxation agreement with the
USA began; talks are taking place
with Japan, and discussions with
other countries will follow continu-
ously.
The Federal Council is of the opini-
on that the first double taxation ag-
reement with the new regulations
on administrative assistance has to
be subject to an optional referen-
dum so that the Swiss people can
express their view. Parliament has
the final say as to whether to make
the agreement subject to referen-
dum.

41
“It is our right to act
as if the homeland
were grateful, as if
the world were just,
as if public opinion
were clear-sighted,
as if life were fair, as
if people were good.“
Henri-Frédéric Amiel (1821–1881),
philosopher of Geneva

42
Glossary
Administrative assistance
Communications or dealings bet-
ween the tax authorities of two
states, whereby financially relevant
information is exchanged. Switzer-
land grants administrative assistance
in specific individual cases on reque-
st. Switzerland refuses the automa-
tic exchange of information as it is
practised among the majority of EU
member states.
Direct taxes
These are taxes the basis of which
is dependent on personal attributes
of the person or company liable for
tax. Examples of direct tax are in-
come and capital taxes.
Double taxation
arises from an overlapping of two
or more fiscal jurisdictions. Double
taxation leads to the same person
or company being taxed by two or
more states on the same tax object.
In order to avoid this, states conclu-
de bilateral double taxation agree-
ments. Very often the agreement in-
cludes provisions on administrative
assistance.
Gross domestic product (GDP)
The real gross domestic product
comprises the total production of
goods and services of a country
evaluated at constant prices. When
the GDP is given per head it is di-
43
vided by the population of the
country.
Indirect taxes
Taxes the basis of which depends on
market transactions. A typical exam-
ple of an indirect tax is value added
tax (VAT).
OECD
Organisation for Economic Coope-
ration and Development with its
head office in Paris. It was foun-
ded in 1961 by 16 countries inclu-
ding Switzerland. In the OECD the
governments of member countries
exchange experiences and seek so-
lutions to common problems. The
most important incentive to imple-
ment the produced recommenda-
tions is usually peer pressure. There
are solutions which are developed
as guidelines binding on all mem-
bers (except where one state re-
cords explicitly its objection). One
such standard is the OECD Model
Convention on avoiding Double Ta-
xation of Income and Capital. It is
intended to act as a reference for
questions arising from cross-border
taxation.
Settlement tax
is a tax on the proceeds from capi-
tal. It is raised from the debtor or
the portfolio manager as a tax at
source. The tax is at a fixed rate and
is independent of other income of
the debtor. It satisfies the demands
of income tax on capital proceeds.
In most European countries the tax
base for capital proceeds is interest
and dividends. Some other states in-
clude capital gains.
and dividend, lottery winnings and
pension or lump-sum benefit from
assurance. When the value of these
assets is declared in the tax return
the withholding tax will be reim-
bursed.

Tax evasion
is when a person liable for tax forgets
or conceals tax relevant information.

Tax fraud
is when a person liable for tax de-
liberately falsifies his tax return, for
example in that he uses false or for-
ged documents.

Tax haven
A term for states or territories that
do not levy taxes or levy only very
low taxes on income, wealth, capi-
tal and profits. Switzerland is not
a tax haven because it has a com-
prehensive and balanced tax sy-
stem and a commensurate tax bur-
den when compared internationally.
There is no economic or political
definition. The term is therefore ex-
ploited according to perceived po-
litical requirements and often leads
to tension between states.

Withholding tax
is a security tax raised at source.
The tax basis is the proceeds from
moveable capital before interest

44
Published by
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3003 Bern
info@gs-efd.admin.ch
www.finance.admin.ch

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Illustrations
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© FDF Communications
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