At the end of 2006, $606.8 billion of assets in Switzerland’s financial sector were beneficially owned by nonresident individuals who can easily avoid tax on those assets.
This follows their analyses of three other crime-creating jurisdictions: Jersey and Guernsey and the Isle of Man - leading to a total of tax evasion asssets of $1.5 trillion of tax evasion assets in these four jurisdictions. Switzerland is particularly shameless in this respect: brazenly thumbing their nose at other countries who want to crack down on tax evasion.
The report showcases some of the weasel words that lie at the heart of the offshore world. To the $606.8 billion figure should be added a further $356.1 billion in fiduciary deposits. What are these? Like "tax planning," or "tax efficiency" -- words beloved of the tax avoidance and evasion industry -- to the uninitiated, the words "fiduciary deposits" might suggest propriety, and skilled high finance. They are not. The system of Swiss fiduciary deposits promotes criminal tax evasion. As TaxAnalysts explains:
Swiss fiduciary deposits are deposits made by Swiss banks on behalf of their customers in banks in other jurisdictions that have little or no withholding tax on bank interest. And because the deposits pay interest that is not Swiss-source, there is no Swiss withholding tax. Those deposits are highly conducive to tax evasion by individuals. As noted in a 1999 OECD working paper: ‘‘This scheme allows a nonresident desiring to evade taxes to be reasonably certain that a failure to declare the invested capital and/or the interest thereon to his country of residence will go undetected."
In other words, Swiss banks in this case are serving as a kind of turntable, flipping money in and out of the country in order to stop taxes and to trip up the forces of law and order.
Let's be clear about something else. This data is only part of a much bigger picture.
First, TaxAnalysts have made several assumptions which have reduced their potential total to "just" $606.8 billion. For example, for certain types of accounts, the study disregards deposits by Swiss residents - but TaxAnalysts admit that they are assuming that residency here designates beneficial ownership and not, for example, the residence of Swiss lawyers making deposits on behalf of foreign investors. Which is a big, and almost certainly false, assumption in many cases). The study also cuts out hundreds of billions of dollars because this report is part of a bigger global study that TaxAnalysts are doing, and since they are including Swiss fiduciary deposits (for example) in the totals of the jurisdictions where deposits ultimately reside, such as Guernsey and Jersey -- and they don't want to count these deposits twice. This is right for such a global study - but if your interest is in Switzerland, then you will want to include these numbers.
We sent this report to someone knowledgeable about Swiss banking, and he replied that the total sum could well be higher: there are, he said, "a lot of black boxes."
And that is by no means all. The figures here refer only to potential tax evasion by individuals. Tax evasion, which is (by definition) illegal, is just one component in the much larger universe of tax dodging. An entire industry has grown up to promote the other part of the problem: tax avoidance (which is, by definition, legal: as a former UK Finance Minister put it, "the difference between tax avoidance and tax evasion is the thickness of a prison wall.") And remember that this is about individuals: we haven't even got onto the subject of corporations avoiding or evading taxes through transfer mispricing and all kinds of other tricks - which is yet another story.
This is an excellent study, and it's nice to see serious researchers digging deep into the murky world of offshore: the scandal has been allowed to fester in secrecy for far too long. But it's important to remember: these huge numbers are only a part of a much, much bigger picture.