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The Negotiations of a Tax Agreement between Switzerland and Germany

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Misha Nagelmackers-Voinov

I. Actors at Play: States, International Organizations and Non-state Organizations

Texte intégral

1In order to analyze the process of negotiations that took place in the preparation of a tax agreement between Switzerland and Germany, this section presents the different actors at play. There are many actors that were active in the run up to the start of official negotiations between Germany and Switzerland. In order to remain brief, only the main actors and their main challenges or issues are presented: Germany and Switzerland; international organizations such as the OECD, the G20 and the EU as well as non-state organizations such as the banking industry and other interest groups.

1. States

2The State as a whole is subject to interactions with structures above it (the international system) and individuals below it. They are the principal actors in the international system and large powers are considered to have the most influence on the international stage.

1.1 Switzerland

  • 9 Laurent Goetschel, Magdalena Bernath, Daniel Schwarz, Swiss foreign policy: foundations and possibi (...)

3A state’s power is determined by the way it perceives and judges its options.9

  • 10 Beat Bürgenmeier, “Quel libéralisme pour quelle intégration européenne?” in René Schwok (éd.), Plac (...)

4At first glimpse, Switzerland would appear isolated politically. It is not part of the decision and policy-making process of any world coalition – starting with its direct neighbour, the European Union. “Switzerland chose bilateral negotiations with the EU, when recent history demonstrates that its diplomats got better results in multilateral negotiations. So, to strengthen its position, it aligned its position to the European position within the WTO, while at the same time managing its bilateral negotiations with the EU.”10

  • 11 Karl W. Deutsch; J. David, “Multipolar Power Systems and International Stability”, World Politics, (...)

5Being part without being in gives the country additional flexibility. The particular position of Switzerland, on the outskirts of the EU but still a major partner, ensuring its legal system is euro-compatible while maintaining a number of particularities, has allowed Switzerland to engage in talks with EU countries on tax issues, such as tax cooperation agreements that allow fair taxation while guaranteeing privacy. Such a pragmatic solution broke the EU united coalition against Switzerland on tax issues and persuaded Germany and United Kingdom to initiate talks. “The number of independent actors is responsive to the general impact of coalition membership; and as a nation enters into the standard coalition, it is much less of a free agent than it was while non-aligned. Its alliance partners now exercise an inhibiting effect – or perhaps even a veto – upon its freedom to interact with non-alliance nations.”11

6In a number of critical debates – such as the tax agreement negotiations – Switzerland managed to be in the position of an arbitrator, despite not being part of the EU, by building up its own coalitions and remaining a free nonaligned agent. It also built successful interest-based alliances with smaller countries such as Luxembourg, Lichtenstein or Austria on other topics such as the implementation of automatic exchange of information. On one hand the EU appears to need Switzerland’s cooperation to be efficient; on the other hand, Switzerland is associated to the process (such as in the automatic exchange of information process) and de facto gets a power of veto.

7However, Switzerland walks a very fine line.

  • 12 Berner Zeitung, “Das grosse Switzerland-Bashing in Brüssel” 3.6.2012 (translation MNA).

8Commenting the negotiations and discussions with the EU, Jacques de Watteville, Swiss ambassador to Beijing as per September 2012, former Head of the Swiss Mission to the EU and subsequent successor to State Secretary Michael Ambühl, qualifies the need to consider the claims of the Union while “defending the autonomy of Switzerland,” a real “challenge.” We must be creative, he said.12 Jacques de Watteville perceives a “growing irritation” on the side of the EU regarding Swiss institutional issues. Switzerland is frequently struggling to adapt itself to changes in European law, and is static rather than dynamic. Irritation from Brussels also arises because of the time required to reach a compromise in case of non-agreement. The more the EU grows, the less it appears to be interested in managing exceptions for Switzerland, even though Switzerland is one of its biggest commercial partners.

Isolated but not in Isolation

  • 13 Kenneth N. Waltz, Theory of International Politics, McGraw-Hill, 1979, p. 90–91.

9All States have similar tasks and roles – socialization and competition – and they all develop institutions through which their sovereignty can be guaranteed. The main difference between states is power, which in turn results from their ability to perform the responsibilities they face.13

  • 14 Sébastien Guex “Quelques réflexions historiques, in René Schwok (ed.), Place financière suisse, év (...)
  • 15 John S. Codell, “International Threats and Internal Politics: Brazil, the European Community and th (...)

10Switzerland and its financial center are sometimes described as a small David fighting numerous Goliaths.14 In fact, the country has a long-standing industrial and commercial activity. And this differentiates it from “artificial” financial centers such as the Bahamas or Cayman Islands. Switzerland is second to the US in terms of EU exports, its foreign investments are amongst the highest in the world and in return, the EU remains Switzerland’s first economic and trade partner. It is supposed that transnational investment by interested parties is a restraining condition on intergovernmental conflict and a force favourable to accommodation in general. Transnational links should reduce the chance that states will succeed with bluffs, with threats that could not win ratification in the threatening country. 15

  • 16 Ankur Poddar, Swati Aggarwal Peevush Razdan, “The future of bank secrecy and Switzerland,” 11.8.200 (...)

11There are also over “300,000 American jobs dependent upon almost $150 billion Swiss investments in the US and in return, the US is the largest foreign investor in Switzerland.”16 This real economic power has given and still gives great flexibility to Swiss negotiators. Nevertheless, if the power of the US can be overwhelming in a negotiation, negotiations with Germany and UK can appear more of “equal” to “equal.”

  • 17 Michael Ambühl, “Switzerland’s Future as a Competitive Financial Center,” key note speech at the AG (...)

12“As a strong national economy with its own strong currency, a significant financial sector, and concrete regulatory proposals, we certainly have something to show on the international stage. Switzerland might not be a member of the G20, but the country has a good position in the most important international bodies preparing and implementing the G20 recommendations.”17

  • 18 Pierre-Alain Margelisch, CEO of the Swiss Bankers Association (SBA), meeting on 14.3.2012.

13“Switzerland hasn’t the negotiation power of big countries such as France and the US. It can’t impose solutions. Switzerland has the power to say no – but this is not a sustainable strategy over time. Therefore, solutions need to be found through negotiation.”18

1.2 Germany

  • 19 Laurent Goetschel, Magdalena Bernath and Daniel Schwarz, Swiss foreign policy: foundations and poss (...)

14The signing of a tax agreement with Switzerland adds controversy to purely internal debates in Germany. In 2011, the biggest EU country is facing major challenges, some of which are linked to the actual “small coalition” in the German government, some others to the SPD Länders campaigning to destabilize the ruling coalition or to the risks that the Eurozone crisis puts on its economy, or even the democratic legitimacy of the German government’s decisions. These challenges at the EU, federal and regional levels tend to confirm “the role played by domestic policy factors in foreign policy decision-making; it is more important than the direct effects of specific change in the international setting.”19

15In November 2005, Angela Merkel (CDU) became the first “Bundeskanzlerin” of the Federal Republic of Germany. She formed a government of "grand coalition" for four years, bringing together Christian Democrats and Social Democrats. Her mandate was extended after the victory of her party at the German general elections in September 2009. Since then, however, Chancellor Merkel has had to manage a “small coalition” government – Christian Democrats, CDU/CSU with the Free Democrats.

16The German federal legislative power is vested in the parliament consisting of the Bundestag and Bundesrat. The Bundestag is elected through direct elections, by proportional representation. Bundesrat members are not elected – either by popular vote or by the state parliaments – but are delegated by the respective state government, proportionally to its population. The members of the Bundesrat represent the governments of the sixteen federated states and are members of the state cabinets. The federal government must present all its legislative initiatives first to the Bundesrat; only thereafter can a proposal be passed to the Bundestag. In the present coalition, the government of Christian Democrats (CDU) and the Liberals has a majority in the Bundestag, but not in the Bundesrat.

  • 20 Le Temps, “Comment Rubik a coulé dans le Rhin”, 18.8.2012 (translation MNA).

17Opposition voiced by some German Länders to the ratification of the tax agreement with Switzerland has increased over time, headed by SPD North Rhine-Westphalia (NRW). From Stuttgart to Hamburg, the Finance Minister of NRW has convinced the regional SPD ministers to refuse what he considers “quick fixes” proposed by the agreement. The NRW Finance Minister was also supported by the trade union representing the “650 tax investigators and ten offices”20 devoted to tracking fraudsters in the region; they have been very active on the communication front in the Länders, relaying the NRW Finance Minister’s messages.

  • 21 A member of the SPD party quoted in Le Temps, ibid.

18This is a very good topic for the SPD. There is not much that can be said against Chancellor Merkel. She tends to attract votes from the left and this tax agreement topic is helping us get these votes back”21 as well as destabilize the ruling coalition in Germany. As a result, in a first debate in the Bundestag in April 2012, the fronts were split between the ruling coalition and opposition.

  • 22 More on this topic under “Political power games and conflicting interests,” p. 63.

19As one of the founding members of European integration and the soundest economy in the EU, Germany was able to consolidate its economy, mainly relying on exports, thanks to the decline of the euro. Until mid-2011, the German economy remained unaffected by the 2008 financial crisis. Things have evolved and the labor market has deteriorated. The recent downgrading of the outlook on Germany’s top credit rating by rating agency Moody’s, due to the risks in the Eurozone, was also a reminder of how raising uncertainty could affect Germany’s safe haven status in Europe. No doubt, from the Federal government’s point of view, that the signing of a new tax agreement and cashing in an estimated 10 billion euros, would be of interest to the German government and for the Länders, who would receive 70% of the total amount.22

  • 23 Swiss Confederation Report, “Bilateral relations between Switzerland and Germany,” http://www.eda.a (...)

20Germany is Switzerland’s most important trading partner. These strong links are of benefit not only to Switzerland but to Germany as well. Germany is the market leader in the Swiss import market: one third of all Swiss imports originate from Germany. This is more than the imports from Italy, France, the USA and the Netherlands together. In real terms this means that 7.8 million Swiss buy almost half as much from Germany as 300 million US citizens.23

  • 24 Ibid.

21The partnership between both economies is also reflected in the volume of mutual investments. “With direct investments of CHF 55.8 billion in 2009, Switzerland is the fifth largest direct foreign investor in Germany after the EU states and the USA, and Swiss companies employ around 251,000 People in Germany. Germany is the sixth most important country of origin for direct investments in Switzerland with a portfolio of CHF 33.1 billion in 2009, and German companies employ approx. 103,000 People in Switzerland.”24

2. International and Non-state Organizations: OECD, EC, G20

2.1 Reinventing the Role of the Organization for Economic Co-operation and Development (OECD)

22Since it took over from the OEEC in 1961, the OECD’s vocation was to build strong economies in its member countries, improving efficiency, market systems, expanding free trade and contributing to the development of industrialized as well as developing countries.

23Traditionally, international institutions, non-governmental organizations, multinational corporations, individuals and other sub-state or trans-state actors, such as OECD, are viewed as having little independent influence. And over time, the organization’s mission was losing interest for its members. The construction of the European Union and subsequent introduction of the Euro opened new opportunities for the OECD, in particular in the field of taxation.

24In the mid 90’s, “harmful tax competition” and “damaging tax practices,” including tax evasion, were at the top of agendas at the international, regional, bilateral and national levels. In 1998, the Organization for Economic Co-operation and Development (OECD) published its very first report on “Harmful tax competition.”25 It recognized that each State had sovereignty over its tax system and that levels of taxation could differ from one State to another. The first OECD report echoed Hans Morgenthau’s definition of sovereignty: “the supreme legal authority of the nation to give and enforce law within a certain territory and, in consequence, independence from the authority of any other nation and equality with it under international law.”26

25The OECD report ignored the reality of structural diversity of existing tax regimes. It also made a case that lower tax rates were harmful and were synonymous with preferential tax regimes, or tax havens. In other words, the OECD seemed to promote high levels of taxation as a paragon of virtue. This was definitively in contradiction with the original economic philosophy of the OECD, which was set up to support the Marshall Plan, a program to help Europe rebuild its economy after the end of World War II and prevent the spreading of Soviet communism.

26As a Founding Member of the OECD, Switzerland did not approve the contents of the 1998 report.

The OECD Model Tax Convention

27The World Trade Organization, the United Nations, the World Bank and International Monetary Fund have historically shaped international tax rules. The OECD is generally recognized as the most influential international organization with respect to international income tax developments. Both OECD and non-OECD countries use the 1963 OECD Model Tax Convention; it is used for the negotiation, application and interpretation of bilateral tax treaties that coordinate national income tax regimes. The OECD Model Tax Convention is a “direct descendant” of the League of Nations model treaty developed in the mid-1920s.

28The Model has been frequently updated since 1963. More than 2000 bilateral tax treaties between countries of the world are based on the OECD Model Tax Convention. It is used for official agreements between two countries regarding taxation when the domestic tax legislation of the two countries applies simultaneously to a particular issue or taxpayer.

29The version updated on 17 July 2008, indicated that Austria, Belgium, Luxembourg and Switzerland had entered reservations to Article 26 (OECD Model Tax Convention on Income and Capital – art 26: Exchange of information). However, in March 2009 each of these countries notified the OECD that they were withdrawing their reservation to Article 26.

  • 27 Arthur J. Cockfield, “The Rise of the OECD as Informal World Tax Organization through National Resp (...)

30Arthur J. Cockfield qualified the OECD as an “informal WTO – World Tax Organization.”27 This represents a new area of expertise for the OECD, based on its knowledge of increasing tax concerns in international e-commerce. This was the first time the OECD acted as an informal “world tax organization,” promoting unprecedented international tax cooperation. Over time, the OECD addressed an increasing number of international globalized tax policy concerns, leading the way to a certain decrease of tax sovereignty for smaller countries.

The OECD – White, Grey and Black Lists

31It has appeared that the OECD lists tax havens that are non-OECD countries and its critics have interpreted this as a sign double standard. Some other critics have raised the point that the OECD imposes standards that even OECD countries don’t comply with. But the OECD is an intergovernmental organization that takes decisions by unanimity and it cannot appear to go against its own members’ interests.

  • 28 Tax rates do not reflect the entire tax burden of an individual or corporation. An appropriate tax (...)

32Jurisdictions most likely to appear on “blacklists” are small states, offshore countries or International Financial Centers (“IFCs”), rather than territories or federal states part of or close to international superpowers, such as territories in the Caribbean, the Channel Islands or off the coast of the South China Sea. The term “blacklist” is commonly used in reference to international criminals; some of the world’s best-regulated IFCs feel somewhat indignant at being given such a label. Some argue that many blacklists are compiled in an arbitrary or discriminatory way.28 Beyond the reputation issue, which then needs to be managed, organizations that compile the lists have the power to suggest trade embargoes that are somewhat more difficult to manage than image. When Switzerland landed on the OECD grey list, the Swiss required that all measures be taken to avoid boycotts of the Swiss industry. Once the G20 nations threatened to blacklist Switzerland as a tax haven, it had to consider the potential risks for its entire economy. And the Swiss export industries and multinationals could not afford to have Switzerland on the OECD grey list.

  • 29 The Forum on Harmful Tax Practices was set up in 1998 by the OECD to address harmful tax havens and (...)
  • 30 The Financial Stability Board (FSB), successor of the Financial Stability Forum established by the (...)
  • 31 The FATF was established in 1989 by the G7 to set standards and promote effective implementation of (...)
  • 32 Elisabeth Guigou & Daniel Garrigue, “Révision de la directive sur la fiscalité de l’épargneet la l (...)
  • 33 Federal Department of Finance, “Switzerland's engagement in international bodies that deal with tax (...)

33For instance Hong Kong – as a special administrative region of the PRC – and the Republic of Singapore are not full members of the OECD and are not mentioned in any OECD or Financial Action Task Force (FATF) list. Since 1996, countries are ranked according to their tax system. The Forum on Harmful Tax Practices,29 the Financial Stability Board (FSB)30 and the FATF31 published rankings32 almost instantly in 2000. The FSB rates 42 countries, according to three different levels of risk; the OECD analyzes 35 countries and territories; and the FATF identified 15 non-cooperative countries or territories. Fair and transparent criteria are important when monitoring the implementation of international standards. The same conditions (level playing field) must apply to all states and territories when implementing these standards. For example, monitoring should focus not only on formal compliance with the relevant standards, but also on the actual application of the exchange of information.33

2.2 The European Union and the Council of Europe

“Taxation on Savings Directive:” A Limited Mandate for the EU

  • 34 Caroline Eggli, «Le secret bancaire suisse face aux pressions internationales,» p. 36, in René Schw (...)

34In 2003, in order to tackle tax evasion in Europe, the European Commission adopted the “Taxation on Savings Directive.” The Directive came into effect in 2005 and was further amended in 2008. Observers consider this Directive like a political compromise more than an efficient way to fight tax evasion.34 The European Commission was in favor of regulating and coordinating all direct and indirect EU tax issues; however, member States retained a vote by unanimity for any tax related decisions. From this perspective, a half-cooked deal was better than no deal. The first attempt of an EU-wide agreement via the Convention de La Haye regarding successions in 1989, was unsuccessful. Therefore, politically, the European States needed a positive outcome on a tax issue.

35In the negotiations that preceded the agreement on the Directive, observers report that the UK mastered the defence of its financial center’s by obtaining consensus on a number of loopholes in the Directive, mainly exceptions to taxation. The delegate representing Germany in the negotiations was convinced that the Directive would result in a high stream of income for the German Treasury, while the Italian Delegate had immediately read through the lines and understood the shortages and loopholes. The fact that Germany had agreed to the Directive in good faith, unaware of the loopholes, is important to understand the spirit in which Germany was entering the negotiations with Switzerland in 2011.

Aiming for Automatic Exchange of Information

36The EU’s aim was to establish a system of automatic exchange of information among its member states. A transition period of seven years was decided to allow some EU states or third parties such as Switzerland to opt for a transitional system of taxation at source. After this period, all EU states were expected to apply automatic exchange of information. The trade-off for countries such as Luxembourg or Austria was that third countries, such as Switzerland would adopt similar measures to exchange of information. Discussions were therefore opened with third parties such as Switzerland, the US, Monaco and Lichtenstein. Neither Hong Kong nor Singapore were included in the European Commission’s negotiations; dependent or associated territories of Member States were however expected to adopt the same automatic exchange of information, at the end of the transition period.

  • 35 Patrick Odier, Senior Partner, Lombard Odier & Cie, Genève, Chairman of the Swiss Bankers Associati (...)
  • 36 Paolo Bernasconi, in Daniele Mariani, Rubik sème le doute aussi en Suisse, swissinfo.ch, 13.1.2012.

37“Automatic exchange of information is a concept attempting to establish a standard for its members, specific to the European Union. Many countries reject the idea of such a technocratic and obviously not effective approach to the enforcement of the fiscal obligations of their citizens.”35 A number of countries entered into resistance. “Although tax justice, fairness and equality of treatment are honourable, a country’s top priority remains collecting taxes, at no additional cost. The information received by tax authorities through automatic exchange of information requests to be analyzed; specialists must be hired; investigations can take a number of years… without being sure that, ultimately, arrears will be paid.”36

38Europe is currently under tremendous pressure, not only because of the debt crisis but also because tax reforms are in a deadlock. New rounds of negotiation for the update of taxation of savings have clearly been postponed sine die.

2.3 The G20

Premier Forum for International Economic Cooperation

  • 37 Raymond Aron, Peace and War: A Theory of International Relations,Garden City, NY: Doubleday & Compa (...)

39It is not unjustifiable to regard the concept of power as the fundamental, original concept of all political order, that is, of the organized coexistence among individuals. It is true in fact that within states as on the international scene, autonomous wills confront one another, each seeking its own objectives. These wills, which are not spontaneously reconciled, seek to check each other.”37

  • 38 Pierre-Alain Margelisch, CEO of the Swiss Bankers Association (SBA), meeting on 14.3.2012.
  • 39 Paola Subacchi and Stephen Pickford, “Legitimacy vs Effectiveness for the G20: A Dynamic Approach t (...)

40“Switzerland is not a member of the G20. Consequently, it is very difficult to defend its interests, because the G20 has no clear Corporate Governance and its decisions are taken primarily from a political perspective.”38 Following the G7, G8 and G14 – at the height of the financial crisis in 2008 – the G20 emerged as a multilateral “crisis committee,” managing the international economic and financial turmoil. It gradually turned into a “permanent steering committee;” however, its lack of legitimacy and representativeness became increasingly criticized.39

  • 40 Scott R. Baker, Nicholas Bloom, and Steven J. Davis, “Measuring Economic Policy Uncertainty,” 3 Feb (...)
  • 41 Dr. Alexander Mirtchev, “Will the G-20 Counter the Power of Uncertainty? http://www.krullcorp.com/e (...)

41The G20 is expected to define a roadmap to fight the uncertainty in the global economy. Uncertainty encourages market volatility and impacts prospects for recovery.40 An increase in policy uncertainty implies a decline of 2.2% in real US GDP, 13% in private investment and USD 2.5 million in employment. In addition, extended paralysis bears a high political price as it contributes to the feeling that policy makers are incompetent or misdiagnosing the problem. Leaders of the G20 appear to be primarily addressing the symptoms of the crisis – lack of liquidity – rather than the underlying cause – a lack of solvency. “Pumping liquidity in the ocean of debt will not improve solvency; instead it carries the danger of added inflationary pressures which further feeds economic turbulence.”41

  • 42 The G-20 includes Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, I (...)
  • 43 Rebecca M. Nelson, “The G-20 and International Economic Cooperation: Background and Implications fo (...)

42In 2009, G20 leaders42 agreed “to be the premier forum for international economic cooperation,” a position previously held by a smaller group of countries, the G7, which included Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.43

The G20’s Power to Name and Shame

43The G20 is a heterogeneous group of countries with divergent interests and it sometimes challenging to reach agreements on global economic issues. For instance, the G20 has set targets for fiscal consolidation in 2009; the topic subsequently nearly disappeared from the agenda at the next summit in Seoul. The G20 power to “name and shame” is so far its only and strongest enforcement mechanism. It used it against Switzerland in April 2009, then again in July 2011.

44The power to “name and shame” is not the exclusive privilege of the G20. As part of its mission to create a common democratic and legal area throughout the whole of the European continent, ensuring respect for human rights, democracy and the rule of law, the Council of Europe adopted a resolution at the end of April 2012, calling for firm policies against tax havens.

45The text of the resolution was addressed to the IMF, the OECD and its 47 members. Switzerland – a member since 1963 – is not mentioned in the report. It is however mentioned in the annex to the report: it lists countries according to their financial secrecy and was established by the advocacy coalition Tax Justice Network, an “independent” organization launched in the British Houses of Parliament in March 2003.44 Switzerland is in pole position – defined as the most secretive country in the world – before jurisdictions promoting irrevocable trusts, before the Cayman Islands, Luxembourg, Hong Kong or the United States.

3. Non-state Actors: The Banking Industry and Other Pressure/Interest Groups

3.1 The Swiss Financial Center and the Swiss Economy

A Major Source of Jobs and Income for the Country

  • 45 Swissbanking, “The Economic Significance of the Swiss Financial Centre,” July 2011, p. 1–2, http:// (...)

46The financial sector accounts for 10.7% of value added in Switzerland (CHF 58.6 billion). At CHF 260,000 per employee, productivity of finance is almost twice the Swiss average. Including indirect effects, the added value of the whole financial sector is equivalent to approximately one fifth of the Swiss GDP (18%). It was estimated that the abolition of the distinction between fraud and tax evasion in Switzerland would cost half of the financial sector, which would drop by 12 pt to 6% of GDP. It fell to 9% by May 2012. More than 5.7% of the Swiss workforce works in the financial sector. The financial center (including staff and shareholders) pays an estimated CHF 14–18 billion each year overall in direct and indirect taxes. This equates to 12–15% of all federal, cantonal and municipal tax income. In 2010 CHF 11.2 billion or nearly 10% of all tax receipts was attributed to the banking sector.45

A Highly Regulated Industry

47Self-regulation has proven its worth as an alternative form of regulation for Swiss finance. It is a cornerstone of Switzerland’s financial market architecture. The financial sector of the Swiss economy has a long tradition of self-regulation. Its advantages are a practical approach, flexibility and a high level of differentiation. In collaboration with the Swiss Financial Market Supervisory Authority (FINMA), their regulatory authority, Swiss banks draw up binding codes of conduct which define what constitutes good practice. One example of a code of conduct is the Due Diligence Agreement (CDB).46 Swiss banks are subject to “scrutinized self-regulation”47 rather than to total freedom of action that could be implied by the term “self-regulation.”

48Nevertheless, the costs of adapting to regulatory changes, such as prudential standards (Basel III, “Too Big To Fail”), transparency (the Dodd-Frank Act in the US; MiFID, UCITS, AIFMD and EMIR in the EU), remuneration systems, and tax (OECD 26, FATCA and the flat-rate withholding tax) are proving to be very significant. Furthermore, capital requirements for Swiss banks go well beyond Basel III. Stricter rules have been proposed for banks with systemic relevance, taking total capital requirements to 19%. Of this, 10% has to be held in the form of hard tier one capital.

49These levels present a particular challenge for Swiss banks. The higher capital requirements result in a cost disadvantage compared to foreign banks that can operate from their home country with no need for a Swiss subsidiary holding a Swiss banking license. Swiss stamp duty on bond issues is another structural disadvantage for Swiss banks.

Banking Secrecy and Protecting Individual Privacy against Potential Abuse from Foreign Countries: Historical Perspective

50Switzerland has been facing intense pressure from a number of actors to abandon its banking secrecy. The European Union, the US, emerging countries as well as organizations such as the OECD, the G20, civil society, political parties or pressure groups, have repeatedly launched attacks against the Swiss legal and tax system. Although it is a fact that Swiss privacy regulations have been abused over the years, the origin of the Swiss "obligation of confidence," privacy rules and banking secrecy were originally intended as a protection against abuse from foreign countries.

51In the seventeenth century, and despite the revoking of the Edit de Nantes in 1685, (Protestant) Swiss bankers financed the French monarchy – a business relationship that requested confidentiality considering France’s persecutions of Protestants.

  • 48 Frédéric de Monicault, Suisse: Lumière sur le secret bancaire, Historia, 2010, p. 10.

52Nearly one hundred years later, in 1713, the Geneva Grand Council formally decided that bankers had to “keep records of their customers and their operations; but they were prohibited from disclosing information to anyone other than the client concerned, without the express consent of the Council of the City.”48

53The 1789 Revolution and the nineteenth century also contributed to the development of banking secrecy. The country became a political asylum as well as a financial haven. The 1929 crash, the recession that followed, the rise of fascism and radicalism in Europe eventually led Switzerland to strengthen its banking secrecy not only in the Civil Code, but also by introducing criminal sanctions against bankers who might be tempted to breach secrecy.

54Following its financial crisis in 1931, Germany introduced a strict foreign exchange control, including large scale spying operations in Switzerland, to find out where German citizens were hiding their assets. A few years later, the Nazi government established the death penalty for who failed to report foreign assets; in 1934, three German citizens with bank accounts in Switzerland, were sentenced to death and executed.

  • 49 Federal Act on Banks and Savings, SR 952.0 of 8 November 1934, Status as of 1 January 2009,
  • 50 Federal Act on International Mutual Assistance in Criminal Matters, 20 March 1981 (Status as of 1 J (...)
  • 51 Swiss Federal Constitution, http://www.admin.ch/ch/e/rs/1/101.en.pdf.

55In the early 1930s, a list of two thousand French customers of Swiss banks was “discovered.” The list included the names of several senators, a former minister, bishops, generals and businessmen. The French government entered into negotiations with Switzerland in order to obtain some control on French private assets in Swiss banks: the result was an additional strengthening of banking secrecy. Since 1934, the Swiss banker's professional duty of confidentiality is codified in article 47 of the Federal Act on Banks and Savings.49 Swiss banking secrecy does not protect against prosecution for criminal acts, as defined in the Federal Act on International Mutual Assistance in Criminal Matters50 (1981), insider trading (1988) and money laundering (1990); it also allows assistance to foreign prosecuting authorities, through international administrative and judicial assistance. However, professional duty of confidentiality is completed by article 13 of the Swiss Federal Constitution51 that protects personal privacy as “the right to receive respect for his/her private and family life.”

Contemporary Evolutions of Banking Secrecy

56In 1979, a popular initiative was launched to modify the contents of art 31 of the (former) Swiss Constitution. The objective was to rid banking secrecy of its constitutional base, arguing that banking secrecy was not a concrete application of the right to privacy enshrined in the Swiss Constitution. The referendum took place in May 1984: 4 million votes were casted and over 73% rejected the initiative.

57Protection of personality under private law (art 27/28 Swiss Civil Code of 10 December 1907) remains based on the right to privacy of art 13 of the Federal Constitution of the Swiss Confederation of 18 April 1999. Although banking secrecy never directly equated with a constitutional right, the Swiss People, by their vote in 1984, confirmed that the scope of the Constitution should also extend to the financial sphere of the individual. Such is still the case today.

  • 52 MIS Trend, Lausanne for the Swiss Bankers Association.

58Recent polls52 reveal that there is still strong support in favor of banking secrecy in Switzerland: 78 % in January 2009 (just before the UBS scandal in the US), 81% one year later and 91% in January 2011.

  • 53 Swissbanking, “Protection of privacy – cross-border information exchange”,

59“Bank-client confidentiality” has become the revised terminology for “banking secrecy,” as it protects the privacy53 of the customer and not the privacy of the bank. “Secrecy” has also been changed to “confidentiality,” as secrecy could imply anonymity; Swiss bank accounts, even numbered accounts, are not anonymous; beneficial owners must always be known of banks in Switzerland.

60Countries have a legitimate interest in tax revenue, including from the income of their citizens’ capital deposited in Swiss bank accounts. But on the other hand, bank clients have an equally legitimate interest in the protection of their privacy.

  • 54 Michael Ambühl, “Switzerland’s Future as a Competitive Financial Center”, key note speech at the AG (...)

61For a number of years, “the management of untaxed assets might have been a competitive advantage for the private banking business model. This has dramatically evolved over the past 18 months: untaxed assets are no longer in the interest of Switzerland or of its banks in the longer term.”54

62Because of recent debates, the future of banking secrecy has become first and foremost part of the political debate, rather than a financial or economic issue. But some Swiss lawyers and independent financial advisors were prompt to suggest the use of trusts or “lasting power of attorney” to clients in the wake of the 2009 adoption of art 26 OCDE; many articles were published in Swiss newspapers, conferences, seminars, contributing to confusion and the feeling that very different interests were at stake. Businesses and services that flourished with the success of Swiss banking seemed little interested in the loss of a fundamental Swiss value. But they were determined to keep confidentiality a tradable asset, by recommending trusts.

  • 55 Pierre-Alain Margelisch, CEO of the Swiss Bankers Association (SBA), meeting on 14.3.2012.

63Regularization of inheritance is the sole responsibility of the surviving heir. According to a Geneva lawyer, “a client and his heirs can expect to pay up to a total of 58% of the assets in regularization taxes and inheritance taxes, if subject to the 2011 tax cooperation agreement with Germany. Set up a trust!” However, trying to avoid taxation by using a non-revocable trust is “a very short term strategy. The final beneficial owner or trustee will be identified and taxed.55

3.2 Interest and Pressure Groups

  • 56 Seyom Brown, “Changes Afoot on the Diplomatic Stage,” Boston Globe, February 25, 2007.

64Foreign policy is traditionally about strategies aiming at safeguarding a country’s interests. Goals are achieved through interactions with other countries but have increasingly included non-state actors, such as international organization and the private sector – classified as IGOs and or NGOs. This is partly due to globalization and the increasing number of non-state actors created by states, such as the UN, the OECD, the IMF, non-state actors established by businesses or non-state actors launched by individuals sharing the same interests such as Greenpeace or Amnesty International. “The world is becoming a polyarchy – an international system run by numerous and diverse actors with a shifting kaleidoscope of associations and dependencies… The significant actors in the new polyarchy are not only the nation-states of great military and economic endowments, but smaller states, non-state and transnational actors, as well as various regional and global institutions, some with a degree of supranational authority.”56

  • 57 Peter B. Evans, “The Eclipse of the State? Reflections on Stateness in an Era of Globalization”, Wo (...)

65The new polyarchy does not predict the "eclipse of the state."57 But it changes the exercise of power. If globalization restricts the state’s central power, the emergence of transnational capital (international corporations) also reinforces the need for stable nation states, as much or even more than for domestic or local business.

66There is no doubt that an independent counter power with a democratic role, balancing the power of the state, is critical. Pressure groups, lobbies and political parties have clear mandates and represent clear interests. However, an increasing number of organizations claim to represent “society” or “the People” and have a much fuzzier mandate or interests. Some have political objectives, support better information for citizens and “better” democratic decision-making. Social society is an important contributor to the democratic debate; determining how democratic civil society actually is, who it actually represents, remains an important issue. Some have obtained a remarkable amount of political power without democratic election poll or vote. Such is the case of Transparency International (TI), self-proclaimed “corruption warriors” through a coalition of private, apolitical and non-profit “partners” (financial contributors?). “Main activities are information, prevention and counselling. TI Switzerland is financed through contributions from individual and corporate members, state support, and through donations.”58 Studying interactions between TI and trade associations, such as the SBA, would certainly be of interest. However, mentioning TI in this context it rather related to the issue of TI’s legitimacy, illustrative of the new actors entering the power game. Particularly considering that the OECD uses TI’s rankings on countries’ levels of transparency or cooperation. By doing so, the OECD, as an international organization helping governments tackle the economic, social and governance challenges of a globalized economy, gives strong credibility to TI when it publishes black, grey or white lists.

National Sovereignty and Civil Society’s Legitimacy

  • 59 Pierre-Alain Margelisch, CEO of the Swiss Bankers Association (SBA), meeting on 14.3.2012.

67The system is giving signs of bypassing governments and their populations, who de jure legally and democratically elected them. While civil society has gotten better organized since the 80s, legitimacy and transparency under which it operates is increasingly questioned. For instance, organizations such as Greenpeace are short of living by the very same standards of transparency or legitimacy they target companies and governments about. Likely so, while uproar greets lobbyists who “help” Capitol Hill, not many questions are raised regarding civil society’s methods, sources of financing, objectives or political instrumentation. “Transparency is a political dogma in the main important international organizations such as the G20 or the OECD.”59

  • 60 Y. Papadopoulos, “ How Does Direct Democracy Matter? The Impact of Referendum Votes upon Politics a (...)
  • 61 Ibid.
  • 62 Anthony Giddens, “The Consequences of Modernity”, Polity Press, Cambridge, 1990.

68Political elites have crafted integrative strategies in order to tame the potential conflict of majoritarian mechanisms as well as their indirect impact upon politics and policy-making, such as referendum initiated by petition “from below.” Yannis Papadopoulos60 argues that this adaptive behaviour has taken two forms: preventing recourse to direct democracy or steering the processes it engenders to “encompass all parties likely to make efficient use of the referendum if not co-opted as partners in the governing coalition”. Policy maker can negotiate “ex-ante with opponents to policy reforms that were triggered by government and parliament;” or negotiate “ex-post when the use of direct democracy could not be prevented, as in the case of popular initiatives.” But they can’t handle popular initiatives in a globalized world. Isn’t globalization “the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa”?61 National borders are no longer the primary determinants of policy.62

4. Does Size Matter?

69“The Vatican: how many divisions?” Stalin said. Balance of power is a bonus… the rest is mostly about style and preparation. At first glimpse, Switzerland does not have the characteristics of a powerful nation but there are many strategies that can serve a tight negotiation, even for a small country.

4.1. Size Matters when Deciding a Strategy

  • 63 Hazan Pierre, Armengaud Jean-Hébert, Jozsef Eric, Kovacs Claude, Mary Claude, Millot Lorraire, Rous (...)

70The most promising negotiation strategy is to start early with the idea that both sides will move. Alternatively, when the issue at stake is not of the same critical importance for the other party, taking time or letting things happen in due course has also shown to be successful. An example of this strategy was the negotiation that was engaged in early 1946 in Washington and which is mentioned in the introduction of this paper.63 During sixty-eight days, the Swiss discussed every aspect from a legal point of view, sticking to a strict reading of international and Swiss law. They succeeded in gaining time, as well as exhausting their counterparts; the Americans wanted to wrap up the negotiations quickly and give priority to the reconstruction of Europe; the British did not want the talks to drag on either.

71Another strategy can be to hide commercial objectives with political principles. It has proved to be a successful strategy in international negotiations, but totally unsuccessful with domestic public opinion. Such was the case with the European Economic Area negotiation and the subsequent Swiss referendum in December 1992. This constitutes a Swiss idiosyncrasy where diplomats and policy makers have to manage a possible referendum in the ratification process (see Annex 1 for details).

  • 64 Leaf Van Boven, Thomas Gilovich, Victoria Husted Medvec, The Illusion of Transparency in Negotiati (...)

72In the case of the tax agreement with Germany, the chief negotiator opted for a strategy based on transparency, not regarding his preferences and the perception of his preferences, but rather regarding the process. Much has been written64 about the illusion of transparency in negotiations and the danger of spiraling in the wrong direction toward greater secrecy.

73One of the tasks of the chief negotiator is to decide how much information he wants to hold back, and how he will be able to monitor what he wants to convey and conceal what he wants to conceal. In this particular negotiation, the fact that two negotiations took place in parallel, involving two equally powerful counterparts (the United Kingdom and Germany), both willing to enter an agreement (there was a commitment at ministerial level on both sides) meant that ideas could be tested, feedback could be shared and progress with one partner could be used to move forward with another. Transparency was necessary to enter talks in a cooperative way, as well as build trust and credibility; one of the reasons for this was that Germany entered the talks in a positive spirit, but fearing the Swiss banks might deceive them. But this might also have been a tactic.

74Whatever the strategy decided by Switzerland, and beyond the need to adapt its strategy to size or its counterpart, the Swiss negotiator had to give particular attention to domestic constituents, because of a possible optional referendum (art 141 of the Swiss Constitution).

4.2. Size Matters in Tax Policy

  • 65 Sergio Ermotti, CEO UBS AG, quoted in SonntagsZeitung, “UBS-Chef Ermotti: Schweiz steckt mitten in (...)

75Small countries can reduce their tax burden because the reduction of income due to tax cuts will be compensated by new taxpayers, attracted by mild tax conditions. But such small states aren't political leaders and bigger countries in favour of exchange of information are much stronger by comparison. The best is to be a financial center such as Hong Kong, Delaware, Guernsey or Monaco backed by a world super power such as China US, the UK or France. “The fight against banking secrecy is more a commercial war.”65 Eventually, there might come a day when the PRC is the last defending banking secrecy.

4.3 Building Alliances to Compensate Size

76Taking part in international tax related decisions – as a founding Member of the OECD – the Director of the Federal Tax Administration is a member of the Bureau of the OECD Committee on Fiscal Affairs (CFA). Officials of the Federal Tax Administration (FTA) also represent Switzerland in various working groups of the Committee on Fiscal Affairs. In addition, Switzerland contributes actively to the Forum on Harmful Tax Practices and the Forum on Tax Administration.

77The country has been a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes since September 2009, in its Steering Group as well as in the Peer Review Group. The Global Forum is responsible for assessing the internationally applicable standard for transparency and the exchange of information in the field of taxation.

78Furthermore, Switzerland has been a full member of the Intra-European Organization of Tax Administrations (IOTA) since 2006. IOTA's purpose is to achieve strengthened cooperation between European tax authorities and prepare position statements for important international organizations and bodies such as the OECD and the G20. Switzerland held the Presidency of the organization in 2012.

79Within the framework of the United Nations, Switzerland is also engaged in dialogue with other states in matters relating to international taxes. This takes place via the Committee of Experts on International Cooperation in Tax Matters, an ad hoc committee of the United Nations Economic and Social Council (ECOSOC). This committee deals with international tax law issues and seeks to achieve a balance of interests among industrialized countries, emerging market countries and developing countries.

  • 66 FDF, “Switzerland’s engagement in international bodies that deal with tax matters,” November 2011.

80Switzerland's engagement in the International Fiscal Association (IFA) is also significant. The IFA serves as a discussion forum for tax experts on issues in the field of international taxation.66

81Being active in so many forums, building networks and alliances, gathering knowledge and adapting to a changing environment, Switzerland has been able to have a say in the country’s its size and isolation.

5. Foreign Policy and Tax Issues

82The importance of state finances and taxation systems are frequently underestimated: “half of the history of political systems has been a history of taxation systems, and a considerable number of changes in history started off as tax revolts.”67

5.1 Does Swiss Foreign Policy Cover Tax Issues?

  • 68 Hans J. Morgenthau, Politics Among Nations: The Struggle for Power and Peace, Fifth Edition, Revise (...)
  • 69 Michel Y. Dérobert , “Fiscalité de l’épargne : un enjeu de politique étrangère Suisse”, p. 151, in (...)

83Every regime tends to have the same kind of foreign policy, because national interest relies on elements “of which depend the survival of the nation and the preservation of its identity.”68 Foreign policy does not usually cover taxes. Traditionally, tax issues have been considered a purely domestic matter; Finance Ministers were in charge.. “Diplomats rarely have a say on tax negotiations as they have become increasingly technical.”69 In Switzerland, from a strict organizational point of view, the Federal Department of Finance (FDF) is in charge of all issues relating to federal taxes, both domestic and international, with occasional involvement of the FDFA or the FDEA.

5.2 Major Principles of the Swiss Taxation System

  • 70 There appears to be 495 different notions of federalism – William HStewart, Concepts of Federalis (...)

84An interesting idiosyncrasy relating to the Swiss tax system is the principle of “consent to taxation.” This principle briefly existed in other countries such as France, where it was incorporated in the Declaration of Rights of Man and Citizen of 1789 (art 14.): “All the citizens have a right to decide, either personally or by their representatives, as to the necessity of the public contribution; to grant this freely; to know to what uses it is put; and to fix the proportion, the mode of assessment and of collection and the duration of the taxes.” However, the principle disappeared in the 1793 version of the Declaration. Switzerland remains one of the few countries where taxpayers vote their tax laws, in line with Swiss-style federalism,70 where authority and power are developed from the bottom up. Therefore, subsidiary fiscal autonomy, with opportunities for taxpayers to have their say, can become ever more challenging when entering tax cooperation talks with centralized countries, with top-down tax systems.

85The Confederation was originally not able to levy taxes directly. But then, following the economic crisis in the 1930s and the Second World War, an income and net wealth tax was introduced, together with a tax on profits and a capital tax. “The success of Switzerland’s political system is not based primarily on the principle of direct democracy, but rather on the combination of direct democracy with non-central, competing decision-making and taxation units.”71

86Based on the rule of law, the Swiss taxation system is an example of federalism in action, with a maximum of direct democratic participation.

  • 72 Franz Blankart, “Le secret bancaire comme éthique” p.120, in René Schwok (textes réunis par) “Place (...)

87In most countries, people feel hostility – discomfort at best – at the thought of their tax authorities. This might be explained by the fact that a tax law, voted by a parliament to fit a government’s budget, constitutes a political vote, imposed on the citizen. This power relation, controlled by the nation state is contrary to the sovereignty of the Swiss people. “Switzerland will not abandon the trust factor that characterizes the relations between the State and the taxpayer because other countries have not been able to build trust and furthermore, because of the lack of trust, have to create a punitive tax authority. A partnership between the Sate and the taxpayer, from a financial point of view, generates more income than systemic criminalization of every single tax offense.”72

88Over time, Switzerland has developed an open and transparent tax regime characterized by a moderate tax burden. At the international level, judicial assistance works to counteract tax fraud, and a system of withholding tax (the rate of which is the highest among OECD countries) aims to prevent tax avoidance.

  • 73  Alexis de Tocqueville, “Voyage en Suisse”, in Œuvres complètes d'Alexis de Tocqueville, Paris : Mi (...)

89Already in 1836 Alexis de Tocqueville described a few Swiss particularities. From the Middle Ages, “the Swiss seemed to take great care to remain divided from each other and to diversify through as many differences as possible, to better preserve their own character. The different Swiss cantons, even when determined to act towards a common federal project, did not seek to pass common laws and adopt similar customs; they tended to deliberately chose different ones.” 73

90On the other hand, continental European, or so called “liberalized authoritarian states,” such as Spain, France, Italy and Germany, have remained organized through a central administrative command and subordination principle and were formed, unilaterally, from the top downwards.

5.3. A High Stakes Poker Game

Liar Poker? Fighting an Undercover Institutional and Commercial War

  • 74 Hans J. Morgenthau, Politics Among Nations: The Struggle for Power and Peace, Fifth Edition, Revise (...)
  • 75 The only bond of union that endures among nations, is the absence of all clashing interests,”, in (...)
  • 76 A small knowledge of human nature will convince us, that, with far the greatest part of mankind, i (...)
  • 77 Interests (material and ideal), not ideas, dominate directly the actions of men. Yet the images of (...)

91Laws reflecting human nature govern politics:74 foreign policies follow a rational, objective, and unemotional course. To echo Lord Salisbury,75 George Washington76 or Max Weber,77 interest remains the key factor of international politics.

92Pressure on the Federal Assembly and the Swiss federal government has increased over the years regarding issues of international and domestic policy, in particular regarding tax evasion, banking secrecy and automatic exchange of information. One could consider that it is the financial crisis that made EU countries more aggressive and not Switzerland that suddenly become more cooperative.

93The fight against Swiss banking secrecy or untaxed assets will remain a pretext as long as disclosure rules for beneficial owners in the USA, trust laws in the UK, and Delaware corporations, are left unchanged.

  • 78 Caroline Eggli, “Le secret bancaire suisse face aux pressions internationales,” in René Schwok (ed. (...)

94Beyond the recent financial crisis and public debt, other reasons can explain how the harmful tax competition debate has crept up to the top of the international agendas.78

95First, a damageable loss of income affected countries in the 90s, with the emergence of globalization. Most countries were unprepared to face tax competition that allowed countries to both fight for their national budgets as well as offer compensation to the side effects of globalization on employment and SMEs.

96The second reason is competition amongst international financial centers. The volatility of globalized international capital increased and the highly profitable asset management business became a much disputed source of income. As a result, financial centers lobbied their governments in order to offer the best conditions possible to their customers, thus outplaying competition and gaining market share. With the end of Bretton Woods in 1971, the staggering increase of international capital markets in the 90s, and finally international integration through globalization, the volume of cross-border financial transactions grew tremendously.

97The introduction of the Euro also played its part. When the European member-countries switched their currency to the Euro, the automatic return of corresponding “expatriated” national currencies which were vested with foreign banks – for instance Deutsche Marks in France or French Francs in Spain – disappeared from national money supply, and could no longer be used for credits to the local economy, or support government bonds. The “globalized” European currency directly impacted countries’ wealth. Since its inception, the European Union has been working to try and find a new way of re-regulating its financial markets.

Strip Poker? The Challenges of Maintaining Tax Sovereignty

98Taxes, especially direct taxes, are a politically sensitive issue for the Member States of the European Union. Ideological debate on tax issues is a long-standing tradition in Europe.

  • 79 More on this: Ben J. M. Terra, Peter J. Wattèl, “European Tax Law” Ed. Kluwer, a Wolfers Kluwer bus (...)

99Tax sovereignty is a fundamental part of national sovereignty and although the EC was successful in harmonizing indirect tax legislation – such as customs duties – the European Parliament has not, as yet, received the mandate to substitute for national democratic control over direct taxation policy; no tax is administered or collected at Community level.79 Taxation remains the most important policy instrument for national governments.

  • 80 Pierre-Alain Margelisch, CEO of the Swiss Bankers Association (SBA), meeting on 14.3.2012.

100Tax sovereignty has very much evolved of the past years. “In the past, the absolute rule was the domicile of the taxpayer, for assets in that country. The current tendency is to change these principles and apply the universal principle of taxation. The best example is the US-FATCA (Foreign Account Tax Compliant Act) project, which has extra-territorial effects.” 80

101Member States’ freedom to organize their national tax system as they see fit, remains limited. It is subject to non-discrimination on nationality or origin of goods, capital, services or nationality of persons. But these principles do not apply directly to Switzerland, as it is not a Member State of the European Community.

  • 81 Jean-Christian Lambelet, “Secret bancaire: quelle importance pour la Suisse et pour le monde ?” in (...)

102Economist Jean-Christian Lambelet81 argues that the existence of a few “sanctuaries” such as Switzerland offers an efficient counter power to tax-greedy countries. In such countries, citizens tend to either not declare all their income or wealth, or move to more tax-efficient countries. In this respect, the “world needs countries such as Switzerland, to ensure tax authorities don’t get too greedy.”

Moving to the Black Jack Table?

  • 82 Emmanuel Garessus, “Le fossé s’élargit entre l’élite et le citoyen dans l’UE et en Suisse,” Le Temp (...)

103In February 2012, the Federal Council announced its interest in a tax conformity “self-declaration.” Although Switzerland is in the process of applying new regulations that assimilate serious tax offenses and money laundering, a “certificate of tax compliance” or “self-declaration” would be a major shift from the traditional Swiss trust relationship between citizens, banks and the tax authority. Most surprisingly, this new policy would not be voted by the population. For the very first time in Switzerland, the citizen might no longer be considered prima facie of good faith. The country could be surreptitiously entering an area where the State’s interest is placed above individual’s.82

104Likewise, changes linked to the lifting of reserves on art 26 OECD, applicable to non-residents, could pave the way to changes in Switzerland for Swiss citizens, despite the fact that Swiss tax authorities already have the necessary legal framework – such as the automatic lump taxation – to get taxpayers to cooperate. Cantons might end up not appreciating having to collect data for non-residents, and not being able to do so for residents in their canton. Switzerland also has its own tax issues.

  • 83 Servan Peca, “La Banque nationale suisse doit s’attendre à des effets imprévus,” Le Temps, 26.6.201 (...)

105Changes are also appearing in the Swiss check and balances system. According to Urs Müller, Chairman of the Union of Swiss Cantonal Banks, “decisions regarding new (bank) regulations are made once by the SNB, then another time by the FINMA, and finally by the Federal Department of Finance. These regulations overlap in time and in content, which makes the compliance process quite unstable. It is also distressing to note that the fundamental rules of banking are henceforth governed by memos rather than by laws or ordinances […] This means that it is no longer Parliament that sets important topics. Therefore the contents of a memo on regulation can be modified or deleted at any time. The result is a true lack of stability,”83 and a total absence of political or democratic control.

106The recent project for a new Convention on inheritance tax signed by Bern and Paris is also a shift in paradigms for Switzerland: tax would be levied according to the domicile of the heir and no longer according to the domicile of the deceased. This project would constitute a direct application of French tax law in Switzerland, in violation of Swiss tax sovereignty.

107The complex interweaving of domestic and international levels of politics in a negotiation is most obvious at the level of governments. Considering that the Swiss government used the tax agreement negotiation to advance its own domestic agenda vis-à-vis bankers could be a scenario.

Notes

9 Laurent Goetschel, Magdalena Bernath, Daniel Schwarz, Swiss foreign policy: foundations and possibilities, Routledge, 2005, p. 9.

10 Beat Bürgenmeier, “Quel libéralisme pour quelle intégration européenne?” in René Schwok (éd.), Place financière suisse, évasion fiscale et intégration européenne, Editions Euryopa & Institut européen de l’Université de Genève, 2002, p. 135.

11 Karl W. Deutsch; J. David, “Multipolar Power Systems and International Stability”, World Politics, Vol. 16, No. 3. (Apr., 1964), p. 392.

12 Berner Zeitung, “Das grosse Switzerland-Bashing in Brüssel” 3.6.2012 (translation MNA).

13 Kenneth N. Waltz, Theory of International Politics, McGraw-Hill, 1979, p. 90–91.

14 Sébastien Guex “Quelques réflexions historiques, in René Schwok (ed.), Place financière suisse, évasion fiscale et intégration européenne, Editions Euryopa & Institut européen de l’Université de Genève, 2002, p. 31.

15 John S. Codell, “International Threats and Internal Politics: Brazil, the European Community and the US, 1985-1987”, in “International Bargaining and Domestic Politics: Double-Edged Diplomacy”, Edited by Peter B. Evans, Harold K. Jacobson, Robert D. Putnam, University of California Press, 1993, p. 256.

16 Ankur Poddar, Swati Aggarwal Peevush Razdan, “The future of bank secrecy and Switzerland,” 11.8.2009.

17 Michael Ambühl, “Switzerland’s Future as a Competitive Financial Center,” key note speech at the AGM of the Swiss-American Chamber of Commerce, June 20, 2011, Ruschlikon Zurich.

18 Pierre-Alain Margelisch, CEO of the Swiss Bankers Association (SBA), meeting on 14.3.2012.

19 Laurent Goetschel, Magdalena Bernath and Daniel Schwarz, Swiss foreign policy: foundations and possibilities, Routledge, 2005, p. 12.

20 Le Temps, “Comment Rubik a coulé dans le Rhin”, 18.8.2012 (translation MNA).

21 A member of the SPD party quoted in Le Temps, ibid.

22 More on this topic under “Political power games and conflicting interests,” p. 63.

23 Swiss Confederation Report, “Bilateral relations between Switzerland and Germany,” http://www.eda.admin.ch/eda/en/home/reps/eur/vdeu/bildeu.html, last modification 12.9.2013.

24 Ibid.

25 OECD report “Harmful Tax Competition, An Emerging Global Issue” http://www.oecd.org/tax/transparency/44430243.pdf, 1998.

26 Hans J. Morgenthau, Politics Among Nations: The Struggle for Power and Peace, Fifth Edition (revised), New York: Alfred A. Knopf, 1978, p. 4–15.

27 Arthur J. Cockfield, “The Rise of the OECD as Informal World Tax Organization through National Responses to E-Commerce Tax Challenges,”, Yale Journal of Law & Technology, Spring 2006.

28 Tax rates do not reflect the entire tax burden of an individual or corporation. An appropriate tax comparison should also take into account the tax base, deductions, subsidies or exemptions.

29 The Forum on Harmful Tax Practices was set up in 1998 by the OECD to address harmful tax havens and unfair tax practices.

30 The Financial Stability Board (FSB), successor of the Financial Stability Forum established by the G7 in 1999, coordinates financial authorities, operates as an international standard setting body and promotes regulatory, supervisory and other policies in the interest of financial stability.

31 The FATF was established in 1989 by the G7 to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF is a “policy-making body.”

32 Elisabeth Guigou & Daniel Garrigue, “Révision de la directive sur la fiscalité de l’épargneet la lutte contre les paradis fiscaux, les centres offshoreet les juridictions non coopératives,” Rapport d’Information déposé par la Commission des Affaires Européennes, Assemblée Nationale, Enregistré à la Présidence de l’Assemblée nationale le 15 juillet 2009, http://www.assemblee-nationale.fr/13/europe/rap-info/i1834.asp (recovered13.6.2012).

33 Federal Department of Finance, “Switzerland's engagement in international bodies that deal with tax matters,” http://www.efd.admin.ch/dokumentation/zahlen/00579/00608/01467/index.html?lang=en

(13.06.2012).

34 Caroline Eggli, «Le secret bancaire suisse face aux pressions internationales,» p. 36, in René Schwok (ed.), Place financière suisse, évasion fiscale et intégration européenne, Ed. Euryopa, Institut européen de l’Université de Genève, septembre 2002.

35 Patrick Odier, Senior Partner, Lombard Odier & Cie, Genève, Chairman of the Swiss Bankers Association (SBA), meeting on 13.1.2012.

36 Paolo Bernasconi, in Daniele Mariani, Rubik sème le doute aussi en Suisse, swissinfo.ch, 13.1.2012.

37 Raymond Aron, Peace and War: A Theory of International Relations,Garden City, NY: Doubleday & Company, 1966, p. 591–600.

38 Pierre-Alain Margelisch, CEO of the Swiss Bankers Association (SBA), meeting on 14.3.2012.

39 Paola Subacchi and Stephen Pickford, “Legitimacy vs Effectiveness for the G20: A Dynamic Approach to Global Economic Governance,” Chatham House Briefing Paper, October 2011.

40 Scott R. Baker, Nicholas Bloom, and Steven J. Davis, “Measuring Economic Policy Uncertainty,” 3 February 2012, http://www.policyuncertainty.com/media/BakerBloomDavis_Feb3.pdf.

41 Dr. Alexander Mirtchev, “Will the G-20 Counter the Power of Uncertainty? http://www.krullcorp.com/en/inthenews/93-will-g-20-counter-power-of-uncertainty.html.

42 The G-20 includes Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, and the United States, as well as the European Union (EU).

43 Rebecca M. Nelson, “The G-20 and International Economic Cooperation: Background and Implications for Congress,” CRS Report for Congress, Congressional Research Service, 12 April 2012.

44 Tax Justice Network, http://www.taxjustice.net/cms/front_content.php?idcatart=103&lang=1, 16.6.2012.

45 Swissbanking, “The Economic Significance of the Swiss Financial Centre,” July 2011, p. 1–2, http://www.swissbanking.ch/en/20110706-2400-factsheet_finanzplatz_schweiz-rva.pdf.

46 Swissbanking, “Self-Regulation,” http://www.swissbanking.org/en/selbstregulierung.htm, October 2011.

47 Didier de Montmollin, “Autorégulation sous surveillance,” in Congrès LBA 2005, Bern, 7.6.2005.

48 Frédéric de Monicault, Suisse: Lumière sur le secret bancaire, Historia, 2010, p. 10.

49 Federal Act on Banks and Savings, SR 952.0 of 8 November 1934, Status as of 1 January 2009,

http://www.kpmg.com/CH/de/Library/Legislative-Texts/Documents/pub_20090101-BankA.pdf.

50 Federal Act on International Mutual Assistance in Criminal Matters, 20 March 1981 (Status as of 1 January 2013), http://www.rhf.admin.ch/etc/medialib/data/rhf/recht.Par.0016.File.tmp/sr351-1-e.pdf.

51 Swiss Federal Constitution, http://www.admin.ch/ch/e/rs/1/101.en.pdf.

52 MIS Trend, Lausanne for the Swiss Bankers Association.

53 Swissbanking, “Protection of privacy – cross-border information exchange”,

http://www.swissbanking.ch/en/home/dossiers-link/bankkundengeheimnis.htm, 6.6.2012.

54 Michael Ambühl, “Switzerland’s Future as a Competitive Financial Center”, key note speech at the AGM of the Swiss-American Chamber of Commerce, Ruschlikon Zurich, June 20, 2011.

55 Pierre-Alain Margelisch, CEO of the Swiss Bankers Association (SBA), meeting on 14.3.2012.

56 Seyom Brown, “Changes Afoot on the Diplomatic Stage,” Boston Globe, February 25, 2007.

57 Peter B. Evans, “The Eclipse of the State? Reflections on Stateness in an Era of Globalization”, World Politics, Volume 50, Number 1, October 1997, p. 62–87.

58 Transparency International, www.transparency.ch/fr/ueberuns/index.php?navanchor=1110000, 5.6.2012 (MNA translation).

59 Pierre-Alain Margelisch, CEO of the Swiss Bankers Association (SBA), meeting on 14.3.2012.

60 Y. Papadopoulos, “ How Does Direct Democracy Matter? The Impact of Referendum Votes upon Politics and Policy-Making ”, West European Politics, Volume 24, Number 2, 1 April 2001, p. 35–58.

61 Ibid.

62 Anthony Giddens, “The Consequences of Modernity”, Polity Press, Cambridge, 1990.

63 Hazan Pierre, Armengaud Jean-Hébert, Jozsef Eric, Kovacs Claude, Mary Claude, Millot Lorraire, Rousselot Fabrice, Sabatier Patrick, Sergent François, Zoltowska Maja, “Or nazi. Sur les pistes de l'or volé par Hitler,” Libération (Cahier Spécial), 2 décembre 1997.

64 Leaf Van Boven, Thomas Gilovich, Victoria Husted Medvec, The Illusion of Transparency in Negotiations, Negotiation Journal, April 2003; 19, 2; ABI/INFORM Global, p. 117; Stephen M. Garcia, Power and the Illusion of Transparency in Negotiations, Journal of Business and Psychology, Volume 17, Number 1 (2002), p. 133–144; Howard Raiffa, The Art and Science of Negotiation, Harvard University Press, 1982.

65 Sergio Ermotti, CEO UBS AG, quoted in SonntagsZeitung, “UBS-Chef Ermotti: Schweiz steckt mitten in einem Wirtschaftskrieg,” 22.4.2012.

66 FDF, “Switzerland’s engagement in international bodies that deal with tax matters,” November 2011.

67 Robert Nef, “In Praise of Non-Centralism”, Liberales Institut, 2004, p. 24 http://www.libinst.ch/publikationen/LI-Paper-Nef-Non-Zentralismus-e%20(2).pdf.

68 Hans J. Morgenthau, Politics Among Nations: The Struggle for Power and Peace, Fifth Edition, Revised, (New York: Alfred A. Knopf, 1978, p. 4–15.

69 Michel Y. Dérobert , “Fiscalité de l’épargne : un enjeu de politique étrangère Suisse”, p. 151, in René Schwok (textes réunis par) “Place financière suisse, évasion fiscale et intégration européenne”, Ed. Euryopa, Institut européen de l’Université de Genève, septembre 2002

70 There appears to be 495 different notions of federalism – William HStewart, Concepts of Federalism, Ed. Lanham, Md.: University Press of America, 1984.

71 Robert Nef, “In Praise of Non-Centralism”, Liberales Institut, 2004, p. 33–34, http://www.libinst.ch/publikationen/LI-Paper-Nef-Non-Zentralismus-e%20(2).pdf.

72 Franz Blankart, “Le secret bancaire comme éthique” p.120, in René Schwok (textes réunis par) “Place financière suisse, évasion fiscale et intégration européenne”, Ed Euryopa, Institut européen de l’Université de Genève, septembre 2002.

73  Alexis de Tocqueville, “Voyage en Suisse”, in Œuvres complètes d'Alexis de Tocqueville, Paris : Michel Lévy frères, 1864-1866 (translation MNA), p. 451.

74 Hans J. Morgenthau, Politics Among Nations: The Struggle for Power and Peace, Fifth Edition, Revised, (New York: Alfred A. Knopf, 1978), p. 4–15.

75 The only bond of union that endures among nations, is the absence of all clashing interests,”, in Essays by the Late Marquess of Salisbury K.G. New York: E.P. Button & Cie, 1905, p. 21.

76 A small knowledge of human nature will convince us, that, with far the greatest part of mankind, interest is the governing principle; and that almost every man is more or less, under its influence,” in Letter to Continental Congress, George Washington, 28 January 1778, Valley Forge.

77 Interests (material and ideal), not ideas, dominate directly the actions of men. Yet the images of the world created by these ideas have very often served as switches determining the tracks on which the dynamism of interests kept actions moving” in Max Weber, Gesammelte Aufsätze zur Religionssoziologie, trans. Marianne Weber, Tübingen: J.C.B. Mohr, 1920, p. 252.

78 Caroline Eggli, “Le secret bancaire suisse face aux pressions internationales,” in René Schwok (ed.), Place financière suisse, évasion fiscale et intégration européenne, Ed. Euryopa, Institut européen de l’Université de Genève, septembre 2002, p. 36.

79 More on this: Ben J. M. Terra, Peter J. Wattèl, “European Tax Law” Ed. Kluwer, a Wolfers Kluwer business, 2008, p. 6–7.

80 Pierre-Alain Margelisch, CEO of the Swiss Bankers Association (SBA), meeting on 14.3.2012.

81 Jean-Christian Lambelet, “Secret bancaire: quelle importance pour la Suisse et pour le monde ?” in René Schwok (ed.) Place financière suisse, évasion fiscale et intégration européenne, Ed Euryopa, Institut européen de l’Université de Genève, septembre 2002, p. 111.

82 Emmanuel Garessus, “Le fossé s’élargit entre l’élite et le citoyen dans l’UE et en Suisse,” Le Temps, 21.3.2012 (translation MNA).

83 Servan Peca, “La Banque nationale suisse doit s’attendre à des effets imprévus,” Le Temps, 26.6.2012.

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