Under Attack
Switzerland has carefully compromised in each situation, maintaining a degree of independence which was lost by other nearby European countries. After a lengthy court battle the Internal Revenue Service (IRS) dropped its charges of criminal collaboration in tax evasion against UBS last August. UBS paid a US$ 780 million settlement, and agreed to cooperate in the future, but crucially it has kept the majority of its privacy rules in place. The American government has to have legitimate reason for believing tax avoidance has taken place before UBS has to disclose relevant information.
The European Union was also attempting to get the country to open up to foreign tax bureaus. In March 2009, Switzerland agreed to comply with an OECD tax code that will oblige it to reveal information on clients if foreign governments can provide the offender name and proof of his or her illegal activities. Switzerland was then removed from OECDs rey list of nations that did not offer sufficient tax transparency, and was re-categorized as a hite list nation. As late as this October Switzerland was still negotiating with the German and British governments related to tax transparency, in both cases the Swiss government is pressing for a deal where it could collect taxes on behalf of the foreign governments without releasing client information.
Switzerland has also managed to keep its withholding tax, which EU member states such as Belgium, Luxembourg and Austria were forced to drop in 2009 to join the EU informationsharing regime. The withholding tax was 15% but it increased to 20% on 1 July, 2008 and will increase to 35% from 1 July, 2011.
Friends from the East
The impact on the industry was noticeable but ot near to the emergency painted by some says Stephen Wall, director of Scorpio Partnership, a strategy consultancy for the wealth management industry. inancially, there has been an impact EUR100 billion repatriated to Italy alone following its latest amnesty and UBS also sizing the potential 10% loss of European assets from deals signed between Switzerland and other European states plus others such as Wegelin shutting any Swissbased services to US citizens, he adds.
However, secrecy is not all that matters according to the Mobile Wealthy Residency Index, a survey produced by Scorpio Partnership. Switzerland llin approach which includes not just fiscal incentives but also professionalism, excellent infrastructure, political and economical stability and security plays a major role when the international wealthy choose a financial center.
These qualities have recently attracted a number of Chinese companies, with GMT management, a maritime freight service and brokerage platform, and Alibaba, an ecommerce platform, among those establishing companies in Switzerland. The Bank of China has recently established an office in the country, and the Geneva Economic Development Office even went as far as opening a hinese desk which provides counsel and advice in Mandarin.
Trade between China and Switzerland could attract even more companies to set up shop. China is Switzerland second largest trade partner in Asia while Switzerland is China ninth largest European trade partner. The trade volume dropped just slightly during the economic downturn but was not far from the impressive $11.3 billion in 2008. Bilateral trade jumped 127% year on-year in the first half of 2010, and Swiss investment in China increased 25% last year to US$300 million.
Publicity blitz
Smaller Swiss private banks such as Pictet, BSI, Bank Sarasin, EFG International, Lombard Odier or Bank Julius Baer and are becoming more and more active in Asia as it has not been affected by neither the EU Secrecy Tax Directive nor the IRS activities. The market is far from saturated According to Datamonitor Wealth Management Market Leaders Survey International wealth managers in China have only around 2% of the market.
Wall of Scorpio Partnership sees this as huge trend with an on-going flow of statements and strategic endeavours to target Asian clients, mostly through Singapore and Hong Kong. /p>
The country has passed a number of other reforms that are helping attract clients. In September 2008, Switzerland outlined a new hedge fund tax proposal that would lower the tax burden for managers of hedge funds and other private equity companies from 40-50% to 15-20%.
According to Switzerland 2007 financial services master plan, the country aims to gain a place among the top- 3 locations for hedge fund production and distribution in Europe and double the market volume for private equity in Switzerland by 2012.
In January 2009, the Swiss Federal Council decided to amend collective investment legislation to remove the socalled Swiss Finish, a set of additional rules applying uniquely to Swiss and foreign investment funds. Switzerland may have gotten an unfair part of the brunt of the European and American tax investigators attention, but as a country with a long history of stability and security and a well laid out legal system, it is excellently positioned to find a way to cooperate with big economies going forward. And in an era of higher transparency and accountability, a strong reputation could count for a lot.
