Do you hold a secret bank account in Switzerland? You may well be on a list of the “no longer wanted clients category”. How do you deal with this situation?

Editor's note: The following article is from Alon Kaplan, of the eponymous Alon Kaplan Law Firm, Tel Aviv and Susanna von Bassewitz, an advocate at Alon Kaplan Law Firm. Both are members of STEP. This publication is grateful for permission to use this article and as ever, comments from readers are most welcome.

Do you hold a secret bank account in Switzerland? You may well be on a list of the "no longer wanted clients" category.

After Switzerland came under pressure from the US arising from the crisis with one of the largest Swiss banks, UBS, other Swiss banks like Wegelin and Credit Suisse came under attack by the US authorities. In addition, there are reports about investigation into the activities of Israeli banks with subsidiaries in Switzerland.

Some governments are making deals purchasing illegally obtained information on their tax payers. Swiss banks are being accused of not complying with certain codes of conduct as well as breaching foreign laws.

Switzerland is one of the important banking centres in the world, holding one third of global assets. Banking contributes about 8 per cent to Switzerland’s wealth; most of this value derives from conventional day-to-day banking and the management of taxed assets. Switzerland may well live with the erosion of banking secrecy and successfully implement its new regulations.

The Swiss Parliament is considering a new legislation obliging foreign bank customers to present to the Swiss bank tax reports from their home country (“white money policy”) indicating that the Swiss bank account is reported in their home country. The aim of the white money policy of Switzerland is to only accept declared assets.

Developments

After Switzerland signed tax agreements with the UK and Germany and is moving towards its white money policy it has now closed a so called third “Rubik” deal with Austria. Rubik deals follow the concept of a withholding tax in return for which the banking secrecy will be protected against the international trend of exchange of information and the client will stay anonymous. Switzerland is currently negotiating further Rubik deals with Greece and with the US. The US aims to obtain further client names rather than only their cash for the Internal Revenue Service as previously achieved by the UBS case. The three agreements have been approved by the Swiss parliament despite wide opposition. The conservative organisation, Campaign for an Independent and Neutral Switzerland, considers challenging the treaties in a national vote. The agreements are supposed to come into effect in January 2013.

Agreements

All these agreements have one and the same object: to legalise undeclared assets of foreign tax payers in Swiss banks while preventing the client’s anonymity. Taxpayers of one of the agreement countries with undeclared assets in Switzerland have the following options:

1.      To legalise their assets by paying a flat rate on the total assets (currently up to an amount of 41 per cent depending on the specific agreement, the assets and the time the assets were in Switzerland) and a withholding tax on future income (currently up to an amount of 48 per cent depending on the specific agreement) unless a tax declaration is made to the authorities on an annual basis. In return for the taxes paid the assets will be legalised and the account holder stays anonymous;  

2.      A taxpayer can also apply for voluntary disclosure in their tax residency country. The assets will be legalised.

3.      For taxpayers who wish to forego any disclosure, the funds have to be removed from Swiss bank accounts by 31 May 2013. After this date Swiss banks will prevent clients shifting assets out of Switzerland without notification. Some Swiss banks have already started to implement regulations to prevent their clients from moving assets abroad.  

A client can retain privacy for quite a high price. After further negotiations with the UK and Germany, Switzerland agreed that these authorities can request information of tax payers up to a certain amount in a simplified procedure (under the agreement) only in case of a concrete suspicion and in regard to new funds. No so-called fishing expeditions will be allowed.

Moreover, an inheritance clause has been added. The “Rubik” deal forbids authorities to actively purchase stolen data. As opposed to Switzerland, the UK interprets this clause in a way that will still allow them to use stolen data if not actively purchased.

So what solution does a “no-longer-wanted” client have if he or she prefers to retain confidentiality and avoid any reporting?

Every specific situation must be considered under its given facts and requires special evaluation and consultation with an expert who may provide guidance to one of the following alternative actions:

1. Someone may agree to participate in a voluntary disclosure programme offered in the country of residency. UK people may join the Liechtenstein Disclosure Facility, which has been offered in the UK since 2009 and will expire in 2016 unless prolonged. Under the LDF, guarantee of amnesty from criminal prosecution will be granted and minimal penalties will be imposed. The LDF is more cost-effective than a normal voluntary disclosure programme. Israeli residents may consider the available programmes for voluntary disclosure in Israel.

2.  According to the Swiss Banking Association, if someone wishes to forego any disclosure the assets must be removed from Switzerland up to presumably May 2013. Swiss banks will not actively provide assistance to this and some banks are already implementing measures against moving funds out of Switzerland.