October 7, 2002

COMMENT & ANALYSIS
I cannot stand Switzerland cheating on tax

By Frits Bolkestein

As an economic liberal, I am in favour of fair tax competition. It is a useful and necessary constraint on governments to ensure that they spend taxpayers' money wisely. But as a democrat, I am a firm believer that individuals and companies should pay all the tax that they owe. I cannot stand cheats or free-riders. Nor can I stand those who make money from the often-lucrative custom of tax cheats.

Within the European Union, we have agreed the outline of a savings tax directive and, before the end of the year, EU ministers are due to adopt this directive definitively. The principle of the directive is simple: to ensure that investors resident in the EU pay tax to the country where they live on interest income from their savings in other countries. After a transitional period of seven years - during which EU countries could choose to impose a withholding tax on non-residents' savings income and share the revenue - all states would be required to exchange information on savers' incomes with the tax authorities of residents' home countries. As a complementary measure, to avoid tax evaders simply shifting their savings outside the Union, the EU's leaders have decided that member states' overseas territories, such as the Channel Islands, should apply the same measures as apply within the EU. For the same reason, EU heads of state have decided that we should also reach agreement on equivalent measures with the US, Switzerland, Andorra, Monaco, Liechtenstein and San Marino.

At a global level, the importance of effective information exchange as a means of fighting tax fraud is gaining increasing recognition. Recent events have provided new justification for intensifying the fight against fraud and money-laundering. Statements by finance ministers of the Group of Seven industrialised countries, and developments at the Organisation for Economic Co-operation and Development, are a clear illustration of the international trend towards greater transparency.

I have been particularly encouraged by the fact that a number of offshore territories that until recently would have been considered tax havens have now committed themselves to inter-national standards of transparency and the exchange of information on request. The winds of change are indeed blowing through global financial centres. Turning a blind eye to tax evasion is no longer regarded as civilised practice.

Despite this, we have not made much progress so far in our talks with our close neighbour Switzerland. This country has a highly efficient and competitive financial services sector. It has adopted strict controls on money-laundering and co-operates fully in international criminal investigations. Its banks claim that they sell their services on the basis of high quality and no longer need to rely on offering a haven from the prying eyes of the tax inspector. And yet any suggestion of a meaningful exchange of tax information remains taboo with an influential part of Swiss society.

There is an obvious contradiction here. We are asking the most normal thing in the world from the Swiss authorities, namely to help to ensure that EU citizens pay their taxes. I find it difficult to believe that the Swiss government is hesitating to help its EU neighbours to uphold their own laws, including fiscal ones. After all, it is not as if we were asking the Swiss to change their laws, practices or traditions concerning their own citizens.

I realise that reaching agreement with the EU's partners on satisfactory equivalent measures is a tall order. Many within the EU and elsewhere have grown rich by attracting the custom of tax evaders and are not in a hurry to lose that custom. Indeed, some of those calling for the strongest possible measures to fight the evasion of savings tax are doing so in the hope that by setting the standards unrealistically high, they will wreck the whole enterprise.

I am a realist. Opponents of the EU's savings tax initiative may yet succeed. But if they do, it will not be for lack of determination on my part or on the part of the Commission as a whole. If the enemies of this initiative do manage to wreck it, it will become clear who are the friends of the tax cheats and who are not.

The writer is European commissioner for taxation and the internal market

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