Tax Evasion

Time to Come Clean

swiss alps-DAPD
Here used to be a good place to hide your money.
  • Why it matters

    Why it matters

    An agreement on the automatic sharing of financial information has prompted tax evaders in several countries to come clean and provide voluntary disclosures to tax authorities.

  • Facts

    Facts

    • Since 2010, Switzerland has allowed its citizens to become exempt from prosecution by filing a voluntary tax disclosure and paying back taxes with fines.
    • The Zürich and Geneva cantons have seen more voluntary disclosures per capita than Germany.
    • In 2014, Swiss banks began demanding that their foreign customers submit tax returns or close their accounts.
  • Audio

    Audio

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Switzerland has always justified its banking secrecy laws with the argument that the government trusts its citizens, and that the Swiss are honest taxpayers. But in the past few years, a rapid increase in the number of voluntary disclosures has shown that the Swiss are no different from their German, French and Italian neighbors when it comes to evading taxes.

Since 2010, Switzerland, like Germany, has given its citizens the option of filing a voluntary tax disclosure and paying back taxes with fines, thereby exempting themselves from criminal prosecution.

In the country’s most populous district, Canton Zürich, the number of voluntary disclosures increased from 1,300 in 2013 to 1,500 last year. In Canton Geneva, the number of such disclosures doubled, reaching 900 in 2014. On a per capita basis, the two cantons, with a combined population of 2 million, saw more voluntary disclosures than Germany, where a record 40,000 tax evaders turned themselves in last year.

“2014 was the record year for voluntary disclosures.”

Markus Söder, Bavaria's Finance Minister

Like their German counterparts, Swiss tax evaders also fear the end of banking secrecy. Formally, it still exists for Swiss citizens, but in November, Switzerland signed an agreement allowing the automatic exchange of financial information with other countries. This means that, starting in 2017, tax authorities in Switzerland and 90 other countries will receive information about their citizens’ foreign bank accounts. Swiss tax investigators also intend to use the information.

The year 2014 will likely go down in history as the year of the great cleanup of Swiss offshore accounts.

When the western German state of North Rhine-Westphalia purchased the first CD containing account data from Swiss banks in 2010, the Swiss government was still vehemently fighting the violation of its banking secrecy laws. But after the United States convinced Switzerland to provide it with information on the Swiss bank accounts of U.S. citizens and Germany’s center-left Social Democratic Party, the SPD, thwarted a planned flat rate withholding tax agreement with Switzerland in the upper house of the German parliament, more countries joined the G20 initiative on the sharing of financial data.

At the end of 2013, Swiss banks, ironically, became pioneers of the cleanup operation. Last year, they demanded that their foreign customers submit tax returns or close their accounts. The Swiss banking association, Swissbanking, even posted a video on YouTube this week that explains what information countries will exchange in the future. The video also points out that Singapore and Hong Kong will no longer be safe places to hide money.


Video: the way automatic exchange of information works.

“2014 was the record year for voluntary disclosures,” said Bavarian Finance Minister Markus Söder, a member of the conservative Christian Social Union, told Handelsblatt. “We expect a massive decline in 2015.” Norbert Walter-Borjans (SPD), his counterpart in North Rhine-Westphalia, agrees.

The number of voluntary disclosures in Bavaria increased by a third to almost 6,000 last year, including the failed disclosure of Uli Hoeneß, the former president of the Bayern Munich soccer club who was sent to prison. Thanks to the boom in voluntary disclosures, Bavaria has received €300 million ($351 million) in previously unpaid taxes and fines.

But the German state with the largest number of voluntary disclosures by far is Baden-Württemberg. A quarter of all German voluntary disclosures were filed here.

North Rhine-Westphalia has reported €1.5 billion in additional tax revenues since 2010.

It is still unclear how much in additional tax revenues the German states have already collected. North Rhine-Westphalia has reported €1.5 billion in additional tax revenues since 2010. Of those states that have already added up their revenues for 2014, Hamburg and Hesse each collected more than €200 million.

As in previous years, tax evasion was largely a western German phenomenon. The number of cases is small in the eastern German states, except in the city-state of Berlin, which collected €60 million in additional tax revenues in 2014.

Thomas Schäfer, the finance minister of the western state of Hesse and a member of the center-right Christian Democratic Union, noted that his state has also seen an increase in the number of voluntary disclosures, and yet the additional tax revenues of €220 million fell short of the €357 million collected in 2010.

 

Admitting Tax Evasion by Bundesland-01

 

Unlike the state finance ministers, tax attorneys don’t expect a sharp drop in voluntary disclosures in 2015. The higher legal hurdles put in place this year have had very little effect, especially on the large number of smaller cases, according to tax attorney Martin Wulff.

While most cases of tax evasion in Switzerland have been cleared up, the big cleanup is only just getting started in neighboring Luxembourg this year. That country will be sharing tax data with other European Union countries beginning in 2016.

 

 Holger Alich is Handelsblatt’s correspondent in Switzerland covering the financial market. Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin, and Donata Riedel covers economic policy, also in Berlin. To contact the authors: alich@handelsblatt.com, hildebrand@handelsblatt.com, riedel@handelsblatt.com

 

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