Tuesday, September 01, 2009

Switzerland: a trillion dollars in black money?

Tucked away low down in an article in the August edition of the Swiss review, there is this:

“Switzerland has become a paradise for foreign capital on which tax is not paid. The uproar from foreign governments is understandable.” These are not the words of a critic of the banks, but of private banker Konrad Hummler. He says that around 30%, or CHF 1,000 billion, of the CHF 2,800 billion or so of foreign assets in Swiss banks is untaxed “black money”.


This blogger has not seen this estimate before, although we note that it is nearly twice the size of a conservative estimate put out by TaxAnalysts in December 2007, which stated that:

"At the end of 2006, there were $607.4 billion of assets in Switzerland's financial sector beneficially owned by non-Swiss individuals who could easily be illegally avoiding tax on those assets in their home jurisdictions."


Back to the latest article in the Swiss review: the source, Konrad Hummler, is authoritative: the chairman of the Swiss Private Bankers' Association. We have commented on Herr Hummler on several occasions, and despite our fundamental disagreements with his world view, we do, in a sense, like his extremely forthright statements.

A while ago, our friends at the Berne Declaration in Switzerland, gave this slightly more anecdotal information:

"European countries are the first losers to Switzerland’s’ assistance to tax evasion. The Banca d’Italia estimates that 500 billion Euros are moved out of Italy untaxed. When Italy recently carried out a tax amnesty, almost 60 percent of the returned money came from Switzerland. If the money that was not returned is distributed similarly, then around 270 billion Euros from Italy still remain in Swiss bank accounts. In January 2003 the German finance ministry learned that the German tax evasion money invested in Swiss, Liechtenstein and Luxembourg bank accounts was estimated at 450 to 550 billion Euros. This is equivalent to a quarter of Germany’s gross national product."


Hat tip: Bruce Krasting

2 Comments:

Blogger Henry said...

“Switzerland has become a paradise for foreign capital on which tax is not paid. The uproar from foreign governments is understandable.” These are not the words of a critic of the banks, but of private banker Konrad Hummler. He says that around 30%, or CHF 1,000 billion, of the CHF 2,800 billion or so of foreign assets in Swiss banks is untaxed “black money”.

This statement perfectly illustrates the universal confusion over the use of the term "capital".

When I studied economics, the term "capital" was used to refer to wealth not consumed but set aside for the purposes of production. In other words, it consists of factory buildings, machine tools, ships, vehicles used for freight transport, tractors and other farm machinery, mining machines, computers used for business purposes - it is perfectly easy to decide what belongs in this category.

There cannot be trillions of dollars worth of physical capital sitting around in a little mountainous country like Switzerland since there would not be anywhere to put it. So what has actually been deposited in Switzerland? Nothing more than paper and electronic claims on wealth, I would suggest, with no reality except in people's minds.

How did these huge claims arise? Most of this consists in the first instance of economic rent of land. Land holdings exist by virtue of legal and recognised claims in the countries concerned.

If governments made the continued holding of land titles conditional on the payment of the rental flows from the land in question, these huge claims on wealth would end up as public revenue and the governments would not need to levy taxes on individuals and companies, an exercise which is like trying to collect smoke in a string bag.

The whole problem is a self-inflicted consequence of sloppy thinking combined with deference to powerful vested interests. There is no excuse for the first, which is a prerequisite for the unreasonable and unjust privileges enjoyed by the second.

11:10 pm  
Anonymous Anonymous said...

The US should begin preparation for the release of all the rich foregners names that have accounts in US banks. The US opened a can of worms that will show that the US is the biggest offender of tax evasion around the world. Foreigners pay no tax on gains in the USA.

5:20 am  

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