Friday, February 05, 2010

Guest blogger: Falciani and the stolen tax data

From Olivier Longchamp, a guest blogger in Lausanne:

"At the end of last year French and Swiss authorities became embroiled in what has become known as the HSBC affair. From a former employee of HSBC, Hervé Falciani, the French tax authorities received a list of clients of that bank’s Geneva branch. They intended to use the data to request fiscal information from the Swiss authorities. The Swiss government strongly protested against this use of the list, which, in the Swiss view, had been stolen. Under Swiss law Falciani had breached banking secrecy and was therefore guilty of a criminal offence punishable by imprisonment.

Cheerleaders of the Swiss financial sector protested to the French authorities, accusing them of dealing with stolen assets. The latter replied that it was nearly impossible to gather information about French taxpayers stashing away part of their income or savings in Swiss banks in any other way.

The fervent and high profile fight was not, in fact, about the use of the list itself – which was, ironically, brought to the attention of French authorities by the Swiss, who previously intended to prosecute Falciani for breaching Swiss bank secrecy – but about the terms of application of the amendment to the Swiss-French double taxation agreement (DTA) concluded last summer. Following the French government’s interpretation of article 10, e), this new OECD-model DTA obliges Swiss authorities to gather banking information about French taxpayers even if their banking connections are not clearly identified (« dans la mesure où ils sont connus » - « as far as they are known »).

According to Swiss officials this is impossible, since it would require the introduction of some kind of a bank accounts survey - thereby breaching banking secrecy. The Swiss finance minister, Hans-Rudolf Merz, didn’t wait before announcing that under these circumstances, he would settle the amendment’s submission in the Parliament of the Swiss-French DTA, which was at first scheduled in March of this year.

But this is not the end of the story. Meeting at the end of January at the World Economic Forum in Davos, Merz and his French counterpart, Eric Woerth, apparently came to an agreement about the use of the names on Falciani’s list. Interestingly, the agreement was presented in completely divergent ways in the French newspaper Le Monde and in the Swiss Le Temps, in spite of their habitual editorial collaboration. The latter reported that, according to the Swiss finance minister, the French authorities had agreed not to use the data figuring in Falciani’s list, nor to pass the list to fiscal administrations of other countries. However, the finance minister’s statement was denied one day later.

In fact, according to a French communiqué published on January 28th, the French authorities will not have to use the list to require more information from Switzerland, since they already have the information they need. The communiqué also makes it clear that the French authorities will use the information provided by Falciani’s list to prosecute the tax evaders, and will not abstain from providing other countries with the information furnished by HSBC’s client list.

In light of these events, Merz’ frantic efforts to restrict the use of stolen banking data by foreign tax authorities – a law about fiscal information exchange is currently in preparation, and this is one of its major articles – seem somewhat useless, not to mention ridiculous.

Unfortunately for Merz this story has a sequel. On February 1st, the German authorities reported they had been offered a list, which would reveal about 1,500 German taxpayers' undeclared Swiss bank accounts and allow the recovery of approximately 100 million Euro of unpaid taxes. A few days later the German government announced that it would accept the offer.

Swiss right-wing parties continue to protest against what they see as unacceptable practices, conveniently forgetting that these are the result of another unacceptable practice, namely the fact that Swiss banks not only accept, but also sometimes encourage, tax evasion by taxpayers abroad, as the UBS-case has shown.

It is worth noting, however, that some dissenting voices can now be heard, even from within the government. Socialist minister of foreign affairs, Micheline Calmy-Rey, sparked a furore amongst the right-wing ranks when she declared that she would have done the same if she had been in the position of the German finance minister. But, according to today’s edition of the conservative newspaper Neue Zurcher Zeitung, even the right-wing minister of the very conservative UDC-Party and other major political representatives seem to be adopting a softer point of view.

Last but not least, even if he still rejects it, Finance Minister Merz has himself mentioned the necessity of discussing the principle of automatic information exchange in the context of a strategy document due out in the Spring. This is a major shift, since until now Swiss authorities have been strongly opposed to this principle. After quarrelling with the US-authorities, and those from Germany, France and Italy, are the Swiss authorities finally coming round to understanding that a move toward a broader tax-compliance is needed?

Interestingly, there’s a further twist to the story, and it’s something few people know about. The stronghold of the Swiss authorities’ position, in both the HSBC and present German case, lies with the assumption that it wouldn’t be possible, under Swiss law, to use stolen bank data for tax recovery. This position has all but unravelled: in 2007, the Swiss federal court issued a quite different ruling in a very similar case. (more about this here). Which is rather inconvenient, isn’t it?"

Olivier Longchamp
Berne Declaration
Lausanne - Switzerland


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