Dr. Avi Nov, Adv.
Switzerland, which is under global attack on the strict banking confidentiality it offers investors from all over the world, has had to announce legislative changes and supposedly new rules in its banking industry, which made headlines in the media in general and in the economic press in particular.
Let’s begin with an ‘all clear’ siren: at issue are minor changes, which will not affect Switzerland essentially, and it will continue being the world’s leading financial center.
According to various estimates, Switzerland’s banks, lead by UBS and Credit Swiss, hold more than two trillion dollars in foreign client capital. The revenues from the financial activity with foreign capital are usually exempt from tax in Switzerland, which is the reason Switzerland has become the world’s biggest tax shelter.
The global struggle
Many countries in the world are trying in every way to collect taxes from their residents’ revenues from their Swiss bank accounts, but without much success. The main reason for the failure of the tax collection is the strict banking secrecy laws.
The global economic crisis led many countries, under the auspices of OECD, to challenge Switzerland’s policy and enact sanctions against it. The main threat, for the mean time, is to add Switzerland to the "black list” of countries that serve as tax shelters.
The global efforts against Switzerland could affect Israelis who hold Swiss bank accounts, who operate in Switzerland through local companies.
Israeli activity in Switzerland
Thousands of Israelis have opened and are maintaining accounts in foreign banks, and the tendency is to open accounts in Switzerland. As opposed to the prevailing view, anyone can open an account in Switzerland today. The minimum for opening an account in an institution that specializes in private banking is usually 500,000 Swiss francs.
In addition, many Israelis run their businesses via Swiss-based companies. Switzerland’s location in central Europe and its attractive tax regime make Switzerland ideal business- and tax-wise to serve as the location of trade, holding and finance companies.
In the years 2006-7 there was a significant increase in establishing companies in the country. In 2007, for example, 40,000 new companies were founded, one third of which were foreign.
If the company is registered in Switzerland, and with careful tax planning, tax payments for company operations can be reduced to between 0%-4%, which is the lowest rate in Europe. In addition, the government offers various incentives to companies newly operating in Switzerland. The incentives include full or partial exemptions from federal tax and canton tax for up to ten years from the beginning of business operation.
Switzerland’s banking confidentiality laws are among the strictest in the world. The duty of confidentiality on tax affairs may apply to most countries in the world, but Switzerland’s success is connected to its strict confidentiality laws and the fact that the violation of banking secrecy in Switzerland is a criminal offence.
Banking confidentiality was introduced in Switzerland in 1934 and was meant, among other things, to fight Nazi Germany’s efforts to receive information about Jewish-owned accounts in Swiss banks. Today the banking confidentiality helps foreign nationals protect their money against high taxes in their countries.
As for investors from Israel operating in Switzerland, the treatise for the prevention of double taxation between Switzerland and Israel enshrines the question of information sharing. The treatise with Switzerland may also include a clause allowing information trading between the tax authorities in the two countries, but the information exchange is very limited.
A fight with Panama
Switzerland surrendered only partially to the international pressure, and agreed to loosen its banking confidentiality, namely to cancel the distinction between "tax evasion” and "tax fraud.” Tax evasion is hiding assets and failing to report income, while tax fraud includes providing false information about income.
The intention is that in both cases Switzerland will be able to provide information to tax authorities in the world. However, the information will not be provided to other countries automatically but only in exceptional cases.
Switzerland is very careful about this, because it is afraid that making its banking confidentiality too flexible will lead to a capital escape to places such as Panama, Singapore and other tax shelters where there is tighter banking confidentiality. There is a global contest here over banking confidentiality laws, and it does not look as if Switzerland intends to lose. Switzerland is now trying to find the right balance between protecting the information about foreign investors and the countries’ demand to provide information about those investors.
Israeli citizens who have bank accounts in Switzerland should not be worried if they have a legal-tax opinion about the tax aspect of their investments.
In any case, only a court order can force a Swiss bank to provide information about its customers, and it looks like the court will not issue such an order unless it was proven that serious tax offenses occurred. When it comes to tax planning, no order will be issued by a Swiss bank.
*This article is intended for informative purposes only and is in no way to be construed as tax advice or a legal opinion