Swiss Leaks, Lux Leaks, Panama Papers, Offshore Leaks, Paradise Papers – the list of revelations about offshore dealings in tax havens goes on and on. And invariably, some of the indignation falls back on Switzerland – now because of a bank branch in Geneva (Swiss Leaks), now because of shady dealings by lawyers' firms in Zürich and elsewhere (Panama Papers), and most recently with the Paradise Papers, on account of commodities giant Glencore, headquartered in Baar (ZG), which is notoriously under suspicion of corruption. Amazingly, in the revelations, those in Switzerland responsible for the weak rules and laws that allow the exposed Swiss companies to profit worldwide from their dishonest dealings always remain protected: those members of the Government and Parliament in the Federal House and the cantons who are all too willing to practice politics in the interests of conglomerates and their shareholders. The upshot is that the Centre-Right majority in the Federal Cabinet, National Council and Council of States have failed over the past few years to introduce a paradigm shift towards a socially and environmentally sustainable Swiss corporate and banking centre:
- An effective review of criminal tax law was prevented,
- the money-laundering law remains toothless in key aspects,
- transparency provisions governing bearer shares, which would provide information about beneficiaries in the offshore world, do not stand a chance.
«Zero tax rate» on profits
The same is true of solid country-by-country reporting, which would reveal the provenance of the profits on which multinational corporations pay tax in Switzerland at a rate of almost zero. Lastly, the Federal Council refused to produce a meaningful report on corrupt financial flows from poor countries to Switzerland. That would at last have been an opportunity to provide clarity as to Switzerland's specific role in the catastrophic outflow of funds from the global South. According to the IMF, countries in the global South lose US$200 billion each year as a result of tax avoidance by corporations.
Blacklist or whitewash?
But as shown by the research on global tax havens published in late November by eminent tax experts from Oxfam International and the Tax Justice Network (TJN), it would be the height of ignorance regarding the real existing business model of Switzerland's current fiscal and financial policy to believe that the near-death of banking secrecy has made Switzerland into just another poor offshore victim among many. The reports by both NGOs conclude that for political reasons the EU Council does not take its own tax haven criteria seriously. If it did, the official EU blacklist published in early December would also have had to include the USA, Hong Kong, Singapore as well as Switzerland. According to Oxfam and TJN, Switzerland therefore fulfils the (per se very lax) EU requirements regarding fiscal transparency and the implementation of the OECD BEPS Agenda against tax avoidance, but continues to operate an unfair tax system to the benefit of multinational enterprises.
The EU Council designates as unfair, countries that use their tax system to attract or retain capital that does not come from value creation in the country itself but from profit shifting from other countries where the economic activities actually take place. When a country generates its corporate tax revenue mainly by shifting profits from other countries, it shows above-average interest income from foreign direct investment.
Based on the relevant data from the International Monetary Fund (IMF), the Oxfam tax experts affirm that Switzerland posts an interest balance of over US$12 billion per annum from intra-company lending. This comes from foreign investments by corporations set up in Switzerland, effected within their network of subsidiaries abroad. These figures place Switzerland behind Luxembourg – the world leader when it comes to low corporate taxation – and practically on a par with Holland in third place.
Old wine in new skins
This should hold implications above all for the parliamentary debates on Tax Proposal 17 (TP 17). The successor proposal to Corporate Tax Reform III (CTR III), roundly rejected by voters last February, is still at the consultation stage, though the same special tax regime that in part accounted for the rejection of USR III is clearly again becoming a major issue around TP 17. Interest-adjusted profit tax, for example, is finding support even from the Green Party's Director of Finance in the City of Zürich, Daniel Leupi. Not only is this highly dubious from a democratic standpoint but also disastrous in world domestic policy terms. For interest-adjusted profit tax serves precisely the purposes of profit-shifting by corporations that led Oxfam and the Tax Justice Network to blacklist Switzerland over its support of them. If the European Council were consistent it would also have to do likewise. Yet EU Heads of State, just like their Swiss opposite numbers, prefer to protect the interests of their own elites, for after all, Holland, Luxembourg or Ireland too have low-tax areas to protect and no one is overly keen to get on the wrong side of the USA, despite Trump.
With another statistic, the Oxfam report reminds us that in Brussels, Switzerland is no powerless dwarf when it comes to economic policy. After the USA and China, Switzerland is the EU's third biggest trading partner. If only Swiss politicians wished to do so, they could have long given a political signal in Brussels against the welfare-destroying offshore system and the socially catastrophic system of international tax competition.