Possible overheating in real estate: tighten mortgage requirements, gov’t told

Home sweet home in Switzerland: signs the market is overheating

BERN, SWITZERLAND – The OECD (Organization for Economic Cooperation and Development) 2012 report on Switzerland, issued this week, cautions Bern against allowing consumer debt to build and warns that the real estate market may be overheating.,

The report’s overall assessment is that while Switzerland is weathering the eurozone crisis reasonably well, it remains at risk from the ongoing sovereign debt problems and economic stagnation in the region. The high Swiss franc will continue to pose problems for the export industry, the OECD notes.

“Exceptionally low” short- and medium-term interest rates are contributing to a mortgage boom and high real estate prices, the report states. Some areas are now showing signs of overheating, the report concludes. “Taking into account the high gross debt of households, the risk could increase, for small internal market banks, if there is a sudden rise interest rates.” Household debt in Switzerland is one of the highest in the OECD, it notes, although household wealth is “not negligible” taking into account assets held by the pension system.

Other key points from the report:

• The country’s two big banks, Credit Suisse and UBS, should be required to have higher leverage ratios than the 5 percent proposed by parliament, common equity should play a greater role and the reforms passed by parliament in 2011 should be implemented more quickly than the scheduled completion date of 2019. Parliament’s capital ratio of 19 percent has been praised as going beyond Basel III requirements for banks around the world, but the size of the two big banks in relation to the Swiss economy creates a risk that remains too high;
• Fiscal reforms would encourage economic growth; these should include a higher TVA (value-added tax) with broader coverage to consolidate growth and reduce distortion in the system. At the same time, the tax rate for individuals should be lowered, the OECD recommends, to encourage growth. Switzerland’s tax rates are modest on an international scale, but this is offset by the burden of mandatory health insurance and pensions.
• A number of measures are recommended to reduce CO2 in line with agreed limits by 2020; the OECD recommends an emissions tax on vehicles, saying this is a relatively inexpensive way for the country to reduce CO2 emissions, and it suggests peak traffic and congested area use taxes.

OECD report on Switzerland, 2012, in French, pdf

Mitt Romney (photo, Gage Skidmore / Wikipedia)

GENEVA, SWITZERLAND – US Presidential candidate Mitt Romney, whose estimated net worth is $190-250 million, has made  public more than 500 pages of tax records after losing the South Carolina primary over the weekend to Newt Gingrich, who accused the former financial investment manager of not coming clean about his wealth. It is the first-ever disclosure by Romney, even though he earlier served as governor of Massachusetts.

Media reaction today in the US to details of the Romney fortune and the couple’s tax record mentions financial accounts in the Cayman Islands and in Switzerland, but focuses on the fact that he is one of the wealthiest candidates ever for the top US office. The Caucas, a New York Times blog, notes that “The Wall Street Journal and financial wire services showed a vast array of investments from a recently closed Swiss Bank account to holdings in Bermuda to the Cayman Islands, all underscoring the breadth and depth of his wealth.”

The disclosure and debate over it are part of growing evidence that a hot presidential campaign topic will be fiscal reform and the disparity between what the rich and other people pay in taxes.

State of the Union address Tuesday night may focus on economic inequality

President Barack Obama will give his State of the Union speech tonight and, according to CBS News, “Economic inequality is emerging as a central theme in the battle for the White House, with Obama trying to harness populist anger at Wall Street and corporations against a backdrop of chronically high unemployment. He plans to call for higher taxes on millionaires in his State of the Union address to Congress on Tuesday night, embracing an idea advanced by billionaire investor Warren Buffett and Occupy Wall Street protesters.”

Media references to the Swiss bank account are generally limited to implying that it is an indication of his wealth and noting that it was closed at the suggestion of political advisors. CBS News reports that “in a conference call with reporters, Brad Malt, Romney’s trustee, called the Swiss account ‘fully legal, fully disclosed’ but said it was closed in early 2010. He added: ‘The income earned on that account is taxed just as any other domestic or other bank account owned by the blind trust.’”

The news channel goes on to note that “pages and pages are devoted to foreign entities in which Romney is invested. Many are located in places like Luxembourg, Ireland and the Cayman Islands, all famous tax havens. None shows much income.”

Reuters, in an article widely picked up, writes 24 January, that “the emerging picture was of a man of great means who contributes mightily to charity. The documents showed he and his wife contributed $7 million in charity over the two years, much of it going to his Mormon church. That represents more than 15 percent of the Romneys’ income for those years”, more than the tax rate paid by the Romneys, with an

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GENEVA, SWITZERLAND – Two new wrinkles appeared Monday 23 January in Swiss media stories surrounding the resignation of Swiss National Bank Chairman Philipp Hildebrand. French-speaking Switzerland’s largest circulation newspaper Le Matin Dimanche yesterday picked up on vague suggestions that have been appearing in German-language media since early January that his wife Kashya, who is American, could have problems with US Fbar (Foreign Bank and Financial Accounts) forms.

And Monday the special commission assigned the task of seeing if Hildebrand respected the central bank’s internal regulations confirmed its 21 December findings: Hildebrand was cleared, although the broader issue of moral responsibility for his wife’s currency transaction profits at a time when he was leading Swiss monetary policy remained.

The former chairman resigned 9 January, saying that he could not prove beyond a shadow of a doubt, once and for all, that it was his wife who had made currency transactions called into question by a stolen copy of a bank statement.

The two-person commission mandated by the Federal Council, the director and vice-director of the Swiss Federal Audit Office, Kurt Grüter and Michel Huissoud, reported to the Swiss government cabinet last week that after reviewing evidence they had not had access to earlier, e-mail exchanges between Hildebrand and Banque Sarrasin, they confirmed their previous conclusion that the chairman had stayed within the rules of the SNB.

Hildebrand case provides Swiss political fodder

The Hildebrand resignation has remained in the limelight in Switzerland, largely because the major political parties have been meeting during the past week to prepare their strategies for upcoming popular votes. The information about Hildebrand’s wife’s currency deal was broken to media by Christoph Blocher, former head of the right-wing UDC People’s Party, who last week talked about the affair for the first time, in an address to the party’s annual meeting.

It turned out, after Hildebrand’s resignation, that the most damning document shown to media was in fact several patched together by a lawyer and politician who is close to Blocher.

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Blackden is a boutique of Swiss-based financial advisers whose work includes expat mortgages and primary & secondary residences, pensions and taxation. Based in Versoix.

ZURICH, SWITZERLAND – The SonntagsZeitung, a Sunday newspaper that has often revealed political secrets, with a mixed track record for getting them right, reports today that 11 Swiss banks are being offered agreements by the US government similar to the one reached in 2009 with UBS, the country’s largest bank. The agreement reportedly would have the banks turning over, via the federal government, names of bankers, correspondence with clients and more as part of requests for administrative assistance.

Such requests are currently covered by the new (2011) Swiss-US double taxation treaty, which parliament is now reviewing, but the details as described by the Zurich newspaper go well beyond what some in Switzerland consider legally acceptable, given Swiss banking secrecy laws.

The Swiss government has said in the past month that it is talking to the US about an agreement, but for all Swiss banks, to end the piecemeal approach used by the US to date to uncover offshore assets hidden by wealthy Americans.

The story appears to be related to talks between the two governments Friday, but Reuters today notes that Mario Tuor, spokesperson for the Swiss State Secretariat for International Financial Matters, said Friday that this meeting was part of the scheduled and still ongoing talks.

Background story, GenevaLunch, 13 December 2011

St Prex, a Vaud town of 5,100 people, inaugurated its new state-of-the-art recycling centre in 2011, now a busy place

BERN, SWITZERLAND – Batteries over 5kg will be taxed at purchase, rather than when they are recycled, starting 1 January 2012, says Bern. Household and small batteries currently carry a recycling tax, at purchase, but not larger ones, such as car batteries and industrial ones.

The new system is designed to boost the rate of recycling from last year’s 69 percent to at least 80 percent.

The change is also designed to ensure funds for collecting, transporting and recycling batteries, work that the federal government assigns to Inobat, a private organization based in Bern. By law, businesses in Switzerland that sell anything with batteries are obliged to take used batteries from customers; the country has some 11,000 collection points.

Swiss are world champion glass recyclers, some way to go on batteries

Some of the money collected by the revised tax will also be used for consumer education, to increase awareness of the need to recycle batteries and to raise the rate of recycling, 69 percent at 31 December 2010. The federal government has set a goal of 80 percent recycled batteries to preserve Switzerland’s natural resources. The figure is well below those for recycling several other items. The Swiss are world champion glass recyclers, with a 94 percent rate.

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Room to grow: Zurich's citizen say it can go ahead with new runways and keep existing flight paths

GENEVA, SWITZERLAND – Swiss voters were back at the ballot box Sunday 27 November, a month after parliamentary elections, to vote on a number of items that differed from one canton to the next.

Here are some of the highlights, as results flow in Sunday evening:

Swiss right loses most runoffs, Geneva rebuffs minimum wage

• The right-wing UDC lost heavily in cantonal runoffs for seats in the upper house of parliament
• Two key federal parliament upper house seats: in the closely watched key Zurich election Felix Gutzwiller and Verena Diener defeated Christoph Blocher; Blocher is a former federal councilor and led the UDC/SVP People’s Party to a dominant position in the last decade until he lost his seat in 2007, and in St Gallen UDC candidate and favourite to win, Tony Brunner, lost to Socialist Paul Rechsteiner
• Canton Geneva has voted against a minimum wage but Neuchatel has voted to include it in the canton’s constitution; Switzerland as a whole does not have a minimum wage
• Canton Vaud: Green Party’s Béatrice Métraux defeated UDC’s Pierre-Yves Rapaz for the cantonal upper house seat left vacant by the death of UDC councilor Jean-Claude Mermoud in September

In German-speaking ares: Zurich airport can grow, Zug taxes down and foreigners get mixed bag:

• Foreigners: they will not be given the right to vote at the communal level in Lucerne, but they were spared stiff requirements pushed by the UDC People’s Party in the city of Basel to require strong language skills in order to be naturalized, and Basel’s citizens also voted 3-1 to place the responsibility for naturalization in the hands of the local government rather than the parliament; in Schwyz, voters agreed, 2-1, to align its naturalization laws with federal law and put responsibility for this in the hands of communal commissions (TSR notes that this was necessary after a scandal in Emmen, Lucerne, where the communal council routinely turned down applications from foreigners from certain countries
• Zurich voted strongly against a motion that would have restricted the airport’s growth; it will now be able to add two new runways to and allow existing ones to be extended; the vote was a sharp rebuke to the officials from several communes who were behind a motion to limit flying over highly populated neighbourhoods and to restrict the airport’s growth
• Zug voted in a number of tax breaks, including doubling the reduction per child for families, from CHF9,000 to 18,000, and cutting the corporate tax rate to 5.75 percent from 6.5
• Lump-sum taxes for wealthy foreigners who reside in Switzerland will continue to be offered by cantons Glaris and St Gallen but the latter’s voters have chosen to tighten requirements.
• Smoking in Basel: voters rejected a proposal by restaurants to adopt less strict federal no smoking laws instead of the cantons, in a close vote with just 200 out of more than 23,000 deciding the issue.

Account holders domiciled abroad must ensure someone is designated as a contact in case of litigation

BERN, SWITZERLAND – US citizens with Swiss bank accounts who are domiciled in the US and who have not clearly designated, in the bank’s files, a representative who can be contacted on their behalf ad litern (in case of litigation) might want to remedy the situation before the end of November. At that point a new amendment to the ordinance covering the Swiss-US double taxation treaty goes into effect. It is designed to “ensure that the procedural rights of affected persons domiciled in the United States remain guaranteed even if administrative assistance requests are submitted based on certain patterns of behaviour”.

It also puts the onus on account holders to make sure someone can be officially notified if an account comes under suspicion by the IRS and the US makes a request for administrative assistance to Switzerland.

Swiss banking privacy laws do not allow banks to turn over data until the federal government’s tax office orders them to do so, if the US request meets criteria set out by the 1996 treaty.

Requests will in future be published in the Swiss Federal Gazette, and owners of accounts who are not named, or their representatives, will have 20 days from date of publication to appeal the Swiss decision, before the data is turned over to US authorities.

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Insurance was 8.4% in 2009, but cost has risen for past 2 years

Sausage, roesti and great local wine in St Gallen in late October: the Swiss spent CHF460 a month on average of their household budget dining out in 2009, but this includes work canteens and cafeterias as well as restaurants

BERN, SWITZERLAND – Average disposable household income in Switzerland in 2009 was CHF6,650 a month, with 13 percent of that, CHF1,185, going for food, beverages and restaurants. Housing and energy together made up the largest household budget item, CHF1,495 a month.

Transport used up 7.7 percent of the budgets and entertainment 6.7 percent. Clothing: 2.4 percent.

Households were left with, on average, savings of CHF1,160 after all expenses were deducted.

Taxes consumed on average CHF1,125 a month, some 12 percent, or less than what a household spent on food and beverages.

But taxes are only one part of Swiss mandatory expenses, which also include social security payments:

- 10 percent of disposable income that includes AVS and company pension plans (the Swiss first and second pillars)

- the mandatory part of the health insurance system (5 percent)

- and money sent to other households, for example as part of a divorce settlement (2 percent).

These mandatory expenses together with taxes account for 29  percent of household budgets, some CHF2,720 a month.

In addition, the Swiss in 2009 spent 3.4 percent on health insurance not covered by the basic, obligatory plans.

The figures were published by the Swiss Statistical Office Tuesday 15 November.

The office notes three important points: 58 percent of all households had lower revenue than the average, 39 percent had at least two people contributing to the revenue, and revenue here includes salaries but also social security income, pension payouts, interest payments, dividends, income from fortunes and money from other households (notably divorce settlements).

BERN, SWITZERLAND – The Swiss government said Wednesday night 2 November that it condemns Israel for two new measures, voted by the Israeli cabinet Tuesday, shortly after Unesco admitted Palestine as a member.

Bern stopped short of calling the measures retaliatory, but it notes that the decision by Tel Aviv to “speed up construction of several thousand additional housing units in the settlements in and around East Jerusalem” is illegal and constitutes a violation of international law”.

The Swiss Federal Council also says that it is “preoccupied by the Israeli government’s announcement concerning a possible freeze on transferring funds to the Palestinian Authority. Such a decision would be contrary to Israel’s international obligations. Switzerland calls upon the Israeli authorities to continue to turn over the tax revenues collected in the name of the Palestinian Authority. These funds make up a significant part of the Palestinian Authority’s budget.”

Switzerland abstained from the Unesco vote on Palestine, but swissinfo cited a statement Monday night by Rodolphe Imhoof, Swiss permanent delegate to Unesco in Paris: “If Switzerland abstained in the voting, it’s because it believes that this debate should not be held in the context of an organisation whose role is a technical one, such as Unesco,.” Imhoof added that the matter was one for the political organs of the UN to decide.

The Israeli government has denied charges that the two cabinet decisions are retaliatory, but AFP quotes an unnamed Israeli official as saying the measures were a “punishment” for the vote.

Daniel Spitz and Mario Delgado, both of DS Tax Consulting SA will present the upcoming changes in Swiss tax legislation, focusing on double taxation treaties and changes on taxation of employees’ incentive plans.

Location: Swissotel Metropole, Geneva
Link out: http://www.ifma-net.ch
Date: 16 Nov 2011
Start time: 12:00
End time: 14:00

Online tax filing: quick, easy and popular in Switzerland

BERN, SWITZERLAND – A small sampling of the Swiss population, 1,000 people interviewed by phone, has shown the Swiss to be happy with government online services, particularly at the commune level, says Bern.

The results of the study commissioned by the federal government, published 18 October, show that 85 percent of Swiss now have Internet access, with smartphones and private connections growing. Older people are using the Internet more.

The growing use of the Internet is no longer translating into a great use of government online services, however, and there is still a tendency to telephone to contact local authorities rather than to try to reach them by e-mail.

The most popular services are online tax filing and various aspects of voting. Some 44 percent of those interviewed said they would like to see the federal and cantonal governments build a health information service, since two-thirds of people go online to look for medical information, but the rate of credibility for information found is very low.

ZURICH, SWITZERLAND – Credit Suisse said Monday it is paying euros 150 million to settle a tax fraud dispute with the Duesseldorf, Germany tax office, heading off a court case. Switzerland’s other large bank, UBS, is reported to have lost $2.3 billion, higher than initially thought, in the fraudulent trading case that erupted last week when the bank called London police, who arrested one of the bank’s traders.

Oswald Gruebel, the head of UBS, told Der Sonntag over the weekend that he will not resign over the theft incident.

The Duesseldorf case brings to an end a saga that began with Credit Suisse offices in 13 German cities being raided after German officials from one state in 2010 bought stolen data from a Frenchman who had worked in the information technology offices of HSBC in Geneva.

Bank Julius Baer earlier in 2011 agreed to settle a similar case with Duesseldorf, for euros 50 million.

BERN, SWITZERLAND – The Foreign Affairs Committee of the Swiss upper house Monday 5 September rejected a new tax assistance treaty with the US, saying that it has been kept informed by Federal Councillor and Finance Minister Eveline Widmer-Schlumpf of discussions with the US over possible Swiss bank involvement in tax fraud cases.

The committee says a repeat of the treaty between the two countries over the case of UBS in 2008 is “not an option”, with that treaty based on emergency legislation. The US must respect existing Swiss law in settling differences over how the American government requests and obtains Swiss judiciary assistance in tax fraud cases.

A negotiated agreement to work out tax issues is the way forward, the committee insists.

Bank UBS paid the US $780 million to settle a case brought by the US Justice Department, which demanded data from 52,000 bank accounts. The Swiss government and tax authorities spent a year reviewing the US requests and agreed to hand over data on 4,450 accounts that met agreed criteria for likely tax fraud. Switzerland made a number of changes to its financial supervisory system and took steps to safeguard Swiss banking secrecy while agreeing to work more closely with other governments in the wake of the UBS crisis.

It was also under pressure from the OECD to bring its judicial assistance programme into line with OECD standards and in the past two years it has negotiated new tax treaties with more than a dozen countries, based on those standards. Among them were treaties announced in August, with the UK and Germany, that call for Switzerland to charge a withholding tax on foreign accounts without revealing the names of the account holders.

Background: “US versus Switzerland over bank details: new round opens”, 5 September, GenevaLunch

DSK release, May 2011 (cartoon ©2011 Patrick Chappatte, Globe Cartoon)

Update 23:45  GENEVA, SWITZERLAND – The rape charges in criminal court against former IMF (International Monetary Fund) head Dominique Strauss-Kahn have been dropped: an appeals court refused to appoint a special prosecutor, allowing a judge’s decision to drop charges, earlier in the day 23 August, to go ahead.

The prosecution had requested that charges be dropped on the basis that they were “no longer convinced of the defendant’s guilt beyond a reasonable doubt”.

The prosecution said in its filing in New York that there was evidence that Strauss-Kahn and Nafissatou Diallo, a maid at a New York hotel, had engaged in a sexual encounter, but whether it was consensual or rape was less clear.

The prosecution noted that Diallo, who has allowed her name to be used, had not been entirely truthful in tax documents and in her application for asylum from Guinea, and the case with a jury would rest on their ability to believe she was telling the truth.

Her lawyers argued that the prosecution was ignoring strong physical evidence.

Strauss-Kahn, who has been under house arrest since soon after his arrest in May, will be free to return to France. He was considered a leading candidate from the Left for the French presidential elections in 2012. Le Monde late Tuesday, in reporting on the charges being dropped, noted that his candidature has been “definitively compromised”, although the New York Times says that his political career is far from over.

Diallo has filed a civil case against the former IMF head, but since these are not criminal charges they will not keep him in New York. France does not allow its own citizens to be extradited, so once on French soil DSK, as he has become known since the case started, would not be obliged to return to the US.

Strauss-Kahn motion to dismiss, NY court (pdf)

Commentaries:

Guardian, “DSK walks, but Nicolas Sarkozy will run”

Le Monde (Fre), “Malgre le non-lieu, une affaire ‘impitoyable’”

New York Times, “End of Rape Case Brings the French Relief, and Political Questions”

Winner takes all, if it’s under CHF1,000

LAUSANNE, SWITZERLAND – A happy winner of the Loterie Romande has an extra CHF2.8 million in his pocket after winning with 2, 3, 7, 18, 33 and 45 (the “complémentaire” number: 16). The announcement Wednesday 17 August came just as the Swiss Federal Council announced its support for legal revisions recommended by parliament that allow lottery winners to keep their first CHF1,000 without paying tax.

Ninety-five percent of Swiss lottery winnings are under CHF1,000, for a total of CHF40 million. The change to the law will not mean of loss of revenues for the government.

Loterie Romande applauded the change to the law, saying it will cut administrative costs, since withholding tax currently must be collected on any gambling wins over CHF50, an amount that has not changed since 1945.

It also makes it easier for the non-profit organization, whose earnings are distributed to charity and community projects, to compete with casinos, where winnings are tax-free, and illegal Internet gambling, where withholding tax is clearly not collected. And of course, it points out, it’s good news for small winners, who keep what they win, as long as it’s uner CHF1,000.

Casinos will deduct a lump sum federal income tax of 5 percent for each lottery win, with a ceiling of CHF5,000. The money goes to the federally-backed programme to prevent addiction to gambling.

Some German residents may now opt to walk openly through the front doors of Swiss banks

BERN, SWITZERLAND – A Swiss-German tax deal has been reached, and the details, which have provoked much speculation in recent weeks, were made public Wednesday morning by the two governments. The much-touted likely “fine” of CHF2 billion that Swiss banks would need to pay Germany turns out to be a refundable guarantee:

“In order to ensure a minimum income from the retrospective taxation of existing banking relationships as well as to state their resolve to implement the agreement, the Swiss banks have undertaken to pay a guarantee in the amount of CHF 2 billion. The funds advanced by the banks will then be offset by the incoming tax payments and refunded to the banks.”

Bern and Bonn initialed the agreement on “outstanding tax issues” Wednesday 10 August. Key features of the agreement include:

• Persons resident in Germany can retrospectively tax their existing banking relationships in Switzerland either by making a one-off tax payment or by disclosing their accounts
• Future investment income and capital gains of German bank clients in Switzerland will be subject to a final withholding tax
• Proceeds of the withholding tax will be transferred to the German authorities by Switzerland
• A safety mechanism is being set up to allow Germany to request some information in order to avoid new, undeclared accounts from being opened
• A solution to the problem of the possible prosecution of bank employees is included.

Specifically, on the withholding tax, Bern says in its statement, “Final withholding tax for the future: future investment income and capital gains should be directly covered by a final withholding tax. The single tax rate has been set at 26.375%. This is in line with the current flat-rate withholding tax in Germany. The final withholding tax is a tax at source. After it has been paid, the tax obligation towards the country of domicile will generally have been fulfilled.”

German authorities will be able to submit requests for information in order to prevent new, undeclared funds from being deposited in Switzerland “in the context of a safety mechanism that must state the name of the client, but not necessarily the name of the bank. The number of requests that can be submitted is limited and there must be plausible grounds. The number will be within the range of 750 to 999 requests for a two-year period; an adjustment will then be made based on the results. So-called fishing expeditions are not permissible.”

Germans can pay lump sum back taxes anonymously or own up to accounts

The agreement notes that “To retrospectively tax existing banking relationships in Switzerland, persons resident in Germany should be given one chance to make an anonymous lump-sum tax payment. The size of this tax burden will vary from between 19% to 34% of the assets in question, and will be determined based on the duration of the client relationship as well as the initial and final amount of the capital.” Alternatively, “those affected should also have the possibility of disclosing their banking relationship in Switzerland to the German authorities.”

Germany to streamline Swiss banks’ access to German market

Switzerland has been keen to gain better access to German financial services markets and the agreement notes that “mutual market access for financial services will be improved.” In particular, “the exemption procedure for Swiss banks in Germany will be simplified, and the obligation to initiate client relationships via a local institution will be eliminated. Likewise, the problem of purchasing data relevant for tax collection purposes has been resolved.

Bern says it expect the agreement to be signed by both governments in coming weeks and notes that it “could enter into force at the start of 2013″.

Michael Ambühl, State Secretary, Swiss Federal Department of Finance, and Hans Bernhard Beus, State Secretary, German Federal Ministry of Finance, were the lead negotiators, who initialled today’s agreement.

US approach contrasts with German tax collection deal

ZURICH, SWITZERLAND – There is not an official war open against Swiss banks, by the US Department of Justice, but continuing skirmishes, highlighted this week by Le Temps and the Financial Times, make it clear that peace is not around the corner, either. Officials from the two countries appear to be heading for another showdown, writes Zurich-based Haig Simonen at the British newspaper, just as Switzerland and Germany are on the verge of announcing that they have found a way forward with a similar problem of German citizens hiding money from their taxman in Swiss bank accounts.

Switzerland and Germany are expected to announce Wednesday 10 August that they have signed an agreement for the Swiss to withhold tax on Germans’ bank accounts in Switzerland while Swiss banks will pay a lump sum up front for tax revenues lost in the past by Germany. The new agreement would leave Swiss banking secrecy intact by Switzerland turning over the taxes collected without identifying account owners.

The New York Times describes the new agreement, as well as an upcoming one with Britain as putting a squeeze on tax evaders, in an article published late Tuesday.

The US is taking a more aggressive tack to uncover past tax cheats and a 2009 treaty with Switzerland covering a set number of accounts held by Americans at bank UBS looks increasingly like a one-off settlement. The DOJ 4 August announced yet another indictment, this time against Gian Gisler, a former UBS banker who left the company in 2008 and who now lives in Zurich. His indictment follows four against former Credit Suisse senior managers in late July that topped up four other ex-Credit Suisse indictments in February 2011.

According to the DOJ “While working at UBS and at two other Swiss asset management firms, Gisler had more than 38 U.S. taxpayer clients and allegedly opened and/or managed more than 60 hidden accounts on their behalf. Gisler left UBS in 2008 when it became public that UBS was the target of an IRS investigation, and moved to a Swiss asset management firm so that he could continue to assist his US taxpayer clients in hiding their accounts at other Swiss banks. When that firm ceased its private banking business, Gisler left for yet another Swiss asset management firm so that he could continue to engage in the same conduct.”

The Financial Times says six other banks, in Switzerland and Liechtenstein are now being investigated by the DOJ. “The US investigations have taken months to gather pace. But receipt of the names, along with thousands of voluntary self-declarations by US taxpayers, has widened the scope of the US inquiries. Although only 25 US taxpayers with undeclared Swiss accounts have been indicted so far – and the first case dates back to April 2009 – the pace is beginning to build.”

Swiss left out of G20 meeting

ZURICH, SWITZERLAND – Switzerland and Germany’s foreign ministers Sunday confirmed media reports that an agreement will shortly be announced on a tax deal. The Swiss Foreign Affairs Department said in a statement that Swiss President and Foreign Minister Micheline Calmy-Rey and German Foreign Minister Guido Westerwelle “both praised the progress that has been achieved in the area of taxation, as well as the generally intensive relations between Switzerland and Germany.”

The two met Saturday 7 August in Locarno, on the sidelines of the Locarno international film festival.

Calmy-Rey “stated that she was pleased that the negotiations concerning an agreement on withholding tax will shortly be brought to a conclusion, and she went on to underscore the fact that ‘Switzerland’s banking sector has no interest in untaxed assets.’ She noted that withholding tax is a fair way of taxing German assets without an automatic exchange of information, and it also guarantees the confidential management of client data,” according to the statement.

Switzerland has not yet confirmed details of the deal, but financial media have been reporting a 26 percent withholding tax as likely, in future.

Swiss newspaper SonntagsZeitung reported at the start of the weekend that a deal is expected to be announced Wednesday 10 August, with Swiss banks agreeing to pay an upfront lump sum for Swiss accounts held by Germans who did not pay taxes in the past 10 years. The amount agreed to, possibly CHF2 billion, is reported, by what the newspaper calls a source close to the deal, to be a fraction of what Germany initially demanded.

G20 meeting in Cannes won’t include Switzerland

Switzerland’s disagreements with its neighbours over accounts held by their citizens in Swiss banks was dealt a new blow over the weekend, however, when the Seco, Switzerland’s economy ministry, confirmed to news agency ATS that French President Nicolas Sarkozy has invited Singapore, but not Switzerland, to participate in the next G20 meeting. Switzerland has been busy for several months building its influence to counteract the possibility it would not be invited to the G20 talks.

Switzerland, despite its role as the world’s top fortune management centre, is not a member of the Group of 20, the world’s largest economies, created in 1999 “to bring together systemically important industrialized and developing economies to discuss key issues in the global economy.” The high Swiss franc is currently viewed by a growing number of investors as one of a small group of “shadow currencies”, reports the Economist and other international media.

It was not invited to the last meeting of the group, in Seoul, but Sarkozy has told Switzerland it will be “integrated” into the G20 meeting, even if it is not directly participating. Switzerland fears a repeat of one of the Seoul meeting outcomes. TSR/ats reports that “the objective of this offensive is to prevent a repeat of what happened in 2009, when Switzerland, without any advance consulation, was put on a gray list of tax havens by the OECD, at the instigation of the G20.”

The next meeting will be held in Cannes in November 2011, under France’s presidency.

India studies stolen HSBC-Geneva account holders data

Meanwhile, India Express 7 August published a story saying that France has handed over to Indian authorities the names of 700 holders of HSBC bank accounts in Switzerland. France received stolen data from a former employee of the UK bank’s Geneva branch, in 2008 and the theft increased tensions between France and Switzerland over the issue of tax evasion and the use of stolen data.

The Indian Foreign Ministry says it already had most of the data from other sources, but will be checking the accounts.

GENEVA, SWITZERLAND – Richard Branson, founder of the Virgin group among scores of other companies, and one of Britain’s best-known entrepreneurs, is reported by the Daily Telegraph in the UK to be moving Virgin Enterprises to Geneva. The move is being linked to Switzerland’s easier tax environment, compared to the UK.

Virgin Enterprises, a very small operation, is the licensing arm of the group. The newspaper quotes an unnamed Virgin official as saying that the group “has become increasingly focused on the development of the Virgin brand internationally and especially in emerging markets,” adding that “To reflect this, we are considering moving our licensing entity to Switzerland in the near future to co-ordinate our international growth and brand management.”

The distribution of Switzerland's 5,000 lump-sum taxpayers is uneven, notes Bern, with many of them choosing to live in resort areas - here, the view from Verbier

BERN, SWITZERLAND – Wealthy foreigners who benefit from Switzerland’s lump sum taxation rules are likely to find they are paying slightly more in taxes – soon for new arrivals but those already in the country have a five-year grace period before the new rules will apply. The actual dates depend on the speed with which parliament reacts to the message sent to it 30 June by the Swiss Federal Council, or cabinet, setting out tighter rules and raising the minimum payment, to ensure that all cantons have the same baseline.

Lump-sum taxpayers in Switzerland represent less than 0.1% of all taxpayers: 5,000 individuals in 2008.

The new rules raise the taxation base to a minimum of seven times the value of the taxpayer’s Swiss home, compared to the current rule of five times the value.

It also sets a minimum of CHF400,000 for the federal tax, which for Swiss citizens and residents who pay income tax is generally relatively small, compared to their local and cantonal taxes.

Cantons must set a minimum tax rate as well, not previously obligatory, but they are free to determine that amount.

Spouses can take advantage of lump sum taxation only if they also meet the criteria.

The government notes that it has taken the measures in response to growing criticism of the system, but that it wants to maintain the basic system. The changes follow a public consultation with interested parties and the council says the vast majority were in favour of tightening the rules.

Canton Zurich in 2010 abolished lump sum taxation after a popular vote, but efforts to change the federal law have failed to gather strong popular support.

Lump sum taxation, known in French as “forfait” taxation, is informally known as a tax on lifestyle. The following rules apply:

Read more…

Geneva, marked by much coming (growth) despite the going (exodus): companies, individuals

GENEVA, SWITZERLAND – Geneva comes out looking pretty but at a price, in the latest “location quality” comparison drawn up by bank Credit Suisse for Swiss cantons. The report issued 22 June says Geneva’s growing economic success is thanks in particular to the availability of high quality labour and its easy accessibility. Geneva’s growth rate from 1995-2008 was the strongest in French-speaking Switzerland.

Victim of its success leads to greater regional cooperation

The canton is nevertheless a victim of its own success, the report notes, with companies and individuals moving to neighboring canton Vaud and across the border to France. A growing regional cooperation is developing as a result, the report notes.

Geneva is one of the country’s smallest cantons, at 282 square kilometres but it is ranked fourth for dynamic economic performance by the bank after Zurich, Zug and Aargau, wth the last two benefitting from their proximity to Zurich.

Geneva’s strength comes from its mixed role as a home to international organizations and as Switzerland’s second international financial centre plus main centre for private wealth management, but it has also been growing rapidly as a trading centre for raw materials. It is gradually going through a transformation from cutting edge industries to cutting edge value-added business, which means that measuring by the value created per employee is one of the country’s highest.

Disposable income in Geneva is by far the lowest in Switzerland

The downside is that Geneva has the tax rates, corporate and personal, that are among Switzerland’s highest, with some of the most costly housing in the country. As a result, Geneva’s regional disposable income, or RDI, used to calculate the financial attractiveness of cantons for residence, is by far the lowest in Switzerland.

Credit Suisse points to the exodus towards France and neighbouring towns, notably Nyon, Rolle and Morges, as the direct result of these high costs, both for companies and individuals.

Morges, a nice place to live - if you can find a home

LAUSANNE, SWITZERLAND – This may come as a surprise to Geneva and Lausanne residents, used to bemoaning the severe housing shortage in their cities, but Morges has just been identified as the Swiss commune with a population of more than 10,000 that has the lowest figure for available housing in 2010: 0.06 percent.

Switzerland’s largest cities nevertheless continue to have a clear shortage of housing. In Zurich the rate of available housing was 0.1 percent, in Lausanne: 0.2 and in Geneva 0.25percent.

The figures are part of new data released by Badac, the Base de données des cantons et des villes suisses (Swiss cantons and cities database), from a study carried out by Idheap, the federal graduate school of public administration.

The latest Badac report, “Monitoring Swiss cities, 2000-2010″, shows that there is a growing disparity in incomes in Swiss cities, most marked in the Lake Geneva region. It also shows that taxes have fallen steadily for families with two children, making cities more attractive places to earn; at the same time social services have suffered, possibly as a result, in some cities.

Zurich, Switzerland (GenevaLunch) – Bank Julius Baer has agreed to pay the German government CHF50 million in a one-time payment, to close an investigation the bank describes as potentially lengthy and cumbersome for both sides.

The payment “will end the investigations against Julius Baer and unknown employees regarding undeclared assets of persons who are subject to taxation in Germany. The investigations were prompted by voluntary self-disclosures of German clients and – as the media reported already last year – by data acquired and collected by authorities,” the bank said in a statement issued Thursday 14 April.

The bank says it sees the action as leaving it “free from allegation” and there free to “now continue to fully concentrate on building and further expanding its business with German clients.”

Switzerland: IMF checks economic winds in 2011

Bern, Switzerland (GenevaLunch) - The IMF (International Monetary Fund) in its annual country report on Switzerland says the  economy is broad-based in the aftermath of the global economic crisis. It is forecasting 2.1 percent growth for 2011 and 1.8 percent in 2012, when it expects exports to fall.

“Domestic demand is benefiting from low interest rates, increased employment and continuing immigration. In spite of the strength of the Swiss franc, exports have grown due to increased global demand.” Geopolitical tensions could have a negative impact and are the biggest risk factor, agreed the IMF team, who visited Switzerland from 18 to 28 March. Tensions in the euro zone could also spark difficulties.

The SNB (Swiss National Bank) could consider tightening monetary policy, the IMF group says, with rebuilding its capital a priority. The central bank’s capital was drained during the crisis, as were those of many governments. Future dividends to the cantons and the Confederation should be made subject to the ability of the SNB to replenish its capital.

The heaviest criticism was reserved for the banking regulatory system, which needs further work, according to the IMF. The Federal Department of Finance will create a working group to follow up one issue: the mandates of the SNB and Finma, the financial supervisory body, should be clarified, according to the IMF.

Additional capital requirements provided for in the Federal Council’s “too big to fail” consultation draft will be instrumental in limiting the risks posed by systemically important banks. Consequently, the IMF experts warn against allowing overly generous “rebate” possibilities. Switzerland’s new capital requirements are among the most stringent in the world, going well beyond bank capital requirements that are part of the new, global BIS (Bank for International Settlements) Basel agreement.

In the mortgage market, the IMF sees a certain degree of easing in financial institutions’ lending standards, says Bern. “The interest-rate sensitivity of banks’ balance sheets has increased due to the tendency towards fixed-rate mortgages with long maturities” and the IMF is in favour of “implementing more conservative affordability standards”, which could be bad news for new home owner wannabes.

The IMF has given its support to several ongoing improvements:

• “The neutral fiscal position to be expected over the next few years is considered appropriate” says Bern’s statement on the IMF visit
• the measures to restructure disability insurance must continue
• the IMF welcomes the ongoing efforts to strengthen financial planning and statistics.

Geneva, Switzerland (GenevaLunch) – The head of a Geneva-based hedge fund company, Edward Gurary, CEO of Dighton Capital Management, has pleaded guilty in the US to not declaring to the IRS (US tax arm) funds held at Swiss banks, including Credit Suisse. The US Department of Justice announced the news in a press release issued late Tuesday 8 March.

Gurary was named 23 February in a DOJ investigation. His office told GenevaLunch at the time that he was on vacation and unavailable for comment.

The latest statement, with Gurary’s admission of guilt, lays out how the financier hid the funds he failed to report; at the time he was living in Ohio, in the US. He moved to the Geneva region in 2010.

“Gurary admitted that from approximately 2002 through 2008, he owned and controlled a financial account at UBS AG which was in the name of a Bahamian entity called Demko Ltd. and which contained balances ranging from $490,000 to $947,000. Gurary controlled transactions in the Demko account by sending faxes using a code name “Vanda” to UBS from an OfficeMax store in the Cleveland area rather than his home or business. UBS would in turn send his requests for authorizations to officers of Demko in the Bahamas in order to make it appear that Demko owned and controlled the account. During the prosecution years, interest was paid by UBS into the Demko account, in amounts ranging from $3,400 to more than $21,000, all of which Gurary admitted he failed to report on his tax returns.”

Belt-tightening to remain in place, but traffic, research and training will receive additional monies

Balancing the Swiss budget: in the black in 2010

Bern, Switzerland (GenevaLunch) - The final figures for 2010 are in and the Swiss government can confirm it was in the black: a surplus of CHF3.6 billion for the regular budget replaces the budgeted deficit of CHF2 billion for the Swiss federal budget.

The turnaround, ascribed to a “surprisingly good development” of the economy led to additional revenues of CHF4.6b, says Bern, while expenses were CHF1b less than budgeted. The economic recovery was more “robust” and earlier than expected, the Federal Council notes in a statement.

Two-thirds of the additional revenues come from the federal income tax, CHF1.4b and the federal withholding tax, CHF1.7b.

Taking into account “extraordinary expenses” of CHF0.4b, the final balance is a 2010 surplus of CHF3.2b.

The budget programme for 2012-2015 was approved by the Federal Council once it accepted the 2010 figures 16 February, with funds released that had been approved in reserve for research and education, as well as traffic improvement plans.

Details: Swiss Federal Finance Department

The Washington Post reports that the governments of Afghanistan and the United States are now at odds over who gets to tax suppliers working under US programmes in Afghanistan, the latest in a series of disputes between the two countries over details of US involvement in Afghanistan. The US says the suppliers fall into a tax-exempt category but Afghanistan says not,  and it has started sending dunning letters to non-Afghan companies that have not paid tax bills sent earlier. “Non-Afghan contractors who have recently received tax bills for work done under US government programs say they have appealed to the Defense and State departments to clarify the matter with the Afghans. But they have been told simply to ignore the bills and ‘stand up for our rights,’ said one official of an American company that has multiple US defense contracts in Afghanistan,” reports the newspaper.

Canton Geneva in the distance and the city of Geneva with its jet d'eau fountain

Update 17:00 / Geneva, Switzerland (GenevaLunch) – Standard & Poor’s, the credit rating institution, at the end of 2010 gave the canton an AA-/stable rating. The full report, in English, was made available this week by the canton. S&P’s assessment for Geneva was mostly upbeat: “The rating on the Republic and Canton of Geneva in Switzerland reflects Standard & Poor’s Ratings Services’ view of Geneva’s very stable, predictable, and supportive institutional framework; the canton’s recent sustained solid budgetary performance; and its large debt reduction since 2006.”

S&P’s notes that while the canton has finished paying out for the losses of BCG that resulted from a mismanagement scandal in the 1990s, a weakness is its “still sizable unfunded pension liabilities, even though a reform of public pension pensions is under way”.

The forecast for Geneva is relatively bright, with a short-term dip in the tax revenues that make up the bulk of the canton’s resources, expected to fall by 13 percent in 201o compared to 2009 as the impact of the economic recession is felt. But S&P’s expects this revenue to pick up again in 2011-2012, “even if at a low pace. Despite management’s strong commitment to control costs, this expected trend in tax revenues will likely result in a slightly negative operating margin over 2010-2012.”

Source: Standard & Poor’s, reproduced with permission

Economic profile of Geneva shows wealth, higher wages, far higher than average foreign population

S&P’s report profiles the city using a rich set of statistics that include these details:

Read more…

Bern, Switzerland (GenevaLunch) – A revised double taxation agreement between the UK (Great Britain and Northern Ireland) will go into effect 1 January 2011, based on OECD standards that cover the exchange of information. The new agreement is one of several Switzerland has been signing since mid-2009 to be compliant with the standards in the area of tax fraud and tax evasion. The new agreement with the UK includes a clause on arbitration that notably allows the two countries to work directly together to reach an amicable settlement in cases where a taxpayer appeals that he or she is being taxed unfairly under the terms of the agreement.

The agreement entered into force 15 December but the provisions covering the exchange of information apply in the tax year that follows, thus 1 January, Bern notes. The arbitration provisions enter into force two years later, 15 December 2013.

Switzerland has double taxation agreements with about 70 countries.

Links to other sites: HM Revenue & Customs page on Switzerland, New Swiss/UK double taxation agreement (Fre)