Monday, January 23, 2012

Swiss 'Rubik' deals are dead in the water

Swiss Info is reporting that the uncertainty surrounding the dodgy and loophole-ridden "Rubik" bilateral deals that Switzerland has negotiated with Germany and Britain, providing immunity to criminal tax evaders in exchange for some secret tax payments, are unravelling under pressure from the EU:
"The tax deals which Switzerland reached last year with Britain and Germany could yet fail in the face of opposition in Europe and in the countries concerned."
This is exactly what we have argued all along (as well as arguing that these deals are not only immoral, and almost useless in terms of raising revenue - they will get thrown out by the EU.) We heard by word of mouth that a top Swiss banker said in the last few days that the deals would die anyway and should be scrapped.)

There's opposition, too, from amongst the Swiss political parties, with some on the Right concerned about the gradual erosion of banking secrecy, while those on the Left see a move towards enhanced information exchange (i.e. automatic information exchange on the EU model) as an inevitability.

As Swiss Info reports:
"It is now by no means certain that the two tax agreements will pass the hurdles of the Swiss parliament either.

The rightwing People’s Party says the negative aspects of the Rubik system outweigh the positive ones. And parties on the left of the political spectrum are in any case relatively sympathetic to EU demands for automatic exchange of information.


Some economists and tax experts have cast doubt on the effectiveness of Rubik. Sergio Rossi, a professor of economics at Fribourg University told Swiss radio and television that it was based on a philosophy that could have worked in the last century, when foreign capital “sat in Switzerland and did not move for decades".


But he sees things moving now in the direction of the automatic exchange of information".

The Swissinfo story isn't quite right, however: this particular story is not, at heart, about exchange of information but about withholding taxes. At the core of the EU objections is that, as we remarked recently:
"that the EU already has legislation regarding withholding taxes on interest. As EU legislation has primacy over bilateral agreements, no EU member State can enter into agreements that impinge on the EU savings tax.
. . .
The withholding taxes levied under the EUSD are merely advance payments against what would ultimately be owed by the taxpayer. Therefore Rubik cannot be regarded as a full and final settlement. The tax evader client can still be liable to penalties, etc. This defeats the one and only purpose of Rubik. Rubik is crippled."
In other words, the key selling point of Rubik is that it enables tax-evading criminals to get off the hook (while paying taxes and back taxes) - but the EU will ensure that even if they do pay those taxes, they are still on the hook. Switzerland has been trying to play some weird little gymnastics behind the scenes to try and get around the EU's objections - by excluding bank interest from the bilateral deals (story only available in German, here, with rough web translation here) - but these typically Alpine subterfuges don't appear to address the core problem here. The whole game is a nonsense.

TJN's position is unambiguous: these deals are weak, immoral, and even silly - and they undermine international attempts to tackle tax evasion. Both Germany and Britain should swallow their pride, withdraw from the deals, and put their diplomatic effort into pushing through the EU's enhanced Savings Tax Directive - suitably extended to Switzerland.

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