Swiss misinformation in the New York Times

The New York Times is carrying an article by a Swiss ideologue, Pierre Bessard, entitled Leave Swiss Banks Alone. Anyone reading it might be forgiven for thinking that Swiss bank secrecy somehow is a benefit to the world. We would like to correct a few points of fact, and of interpretation.

First, he trots out the hoary old canard that bank secrecy started out, at least in part, as a way to protect money from the Nazis. We recently published the correction of this myth in the Financial Times, in our March 26 letter entitled Swiss secrecy laws had nothing to do with the Nazis.

Next, there is a lot of material about Switzerland's relationship with its own taxpayers, culminating in

"we see our system as a social pact between citizens and the state."

Switzerland's government is welcome to have whatever relationship it wants with its own citizens. Very good luck to it. But this is irrelevent to the question at hand. This is about a country wielding bank secrecy aggressively as a financial weapon against other countries - in this case, the United States.

Then there is this

"While tax fraud is considered a crime here, tax evasion is not (though it can be subject to fines)"

Once again, a similar argument applies. Switzerland is welcome to make this distinction against its own citizens. But if a country were to say "money laundering is not considered a crime here" that is something that outsiders will rightly get angry about.

Next, he says this:

"Corruption, expropriation, crime and the persecution of various minorities remain risks in most of the world. For people threatened by such risks, financial privacy can protect their legitimate property."

We have already demolished this pernicious argument, here. It is pure lobbyists' nonsense.

Then:

"Switzerland, which is home to an impressive number of global corporations, has also come under fire from the European Union for offering too-favorable tax rules.. . . Subsidiaries of multinational corporations usually pay income taxes where they operate, so having their headquarters in Switzerland can help companies avoid multiple taxation in high-tax countries, thereby safeguarding productive capital for investment."

Anyone who knows how this works will understand the weasel words here. Sure, it is important to avoid double taxation, but it's also important to avoid double non-taxation. We have to keep repeating this: provisions through secrecy jurisdictions to help corporations avoid being taxed twice are routinely twisted and distorted by accountants and lawyers so that they avoid being taxed not, or hardly, at all. In other words, helping corporations "avoid multiple taxation" is just one of the things they do, the other thing they do is helping them "avoid taxation." He didn't see fit to mention this, it seems.

As a recent paper on Obama's tax plans by the tax expert Reuven Avi-Yonah put it:

"The Obama Plan does this by addressing the central problem of implementing corporate and individual income taxation in a world of open economies: Effective source taxation requires residence taxation, and effective residence taxation requires source taxation."

In other words, to be able to tax properly, you need to have taxes both at the "source" end (where the productive and profitability actually happens) and at the "residence" end (where the company doing that activity is actually resident.) See more on source- and residence- taxation here.

Next, Bessard argues that

"Swiss provisions against money laundering are tough"

First, no they aren't as case after case shows. They are tougher than for many jurisdictions, for sure, but that's not saying much. And who was talking about money laundering anyway? We are talking about the criminal matter of tax evasion. Why can Bessard not mount a defence of Switzerland in that respect? If he has any doubt about the magnitude that Switzerland is inflicting on ordinary taxpayers around the world, he might want to consult this.