End for tax evasion, but not havens: Kuhn

Pressure on tax havens has ensured that steps to curb tax evasion are being taken, however this does not spell the end for tax havens according to Stephan Kuhn, EMEIA Tax Area Managing Partner for Ernst & Young.

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AFP reported that from 2013, German citizens with assets parked in Switzerland's notoriously secretive banks will pay a tax rate of 26.4% on these holdings but will be able to remain anonymous.

Germans who have been avoiding tax by holding assets in Switzerland from 2000 onwards will have to pay a rate of between 19%-34%, depending on the size of their holdings and how long the cash has been in a Swiss bank.

When the accord comes into force, Swiss banks will pay two billion francs (US$2.24 billion) to the German tax authorities.

Once authorities in Berlin receive payments from the taxpayers, they will then reimburse the Swiss banks, increasing the incentive in Switzerland to pressure clients to cough up.

German Chancellor Angela Merkel's cabinet approved the double-taxation deal with Switzerland last week.

Kuhn said: "Switzerland is helping other countries in a nook that may become a new standard. The model with Germany will have the banks take the taxes on behalf that country at a flat rate, continuously from now onwards." He said that this would ensure the anonymity of the clients, but would enable Germany to receive its taxes.

"It's the end of tax evasion in Switzerland, but tax havens still enjoy competitive advantages. Wealthy people in particular still believe in the capabilities of Swiss banks."

Originally, secrecy was adopted under good intentions, however it has somehow become a business model for illegal practices.

"Countries like Switzerland made two, or three mistakes that encouraged bad practices. The first one was providing incentives for the guys that do the business, and they really targeted investments on which they knew their clients didn't want to pay tax."

"The second thing was, because the Swiss economy benefitted so much, they didn't penalise the bankers that brought in clients who were openly evading taxes and instead didn't get involved because it was not the duty of the Swiss tax authorities whether foreigners didn't pay their taxes"

The treaties that are coming into play now are creating more transparency. He said that it needed someone to steal information to convince banks to disclose more information and exchange more details.

Kuhn said that Swiss banks were good and in many cases superior to other banks, so they would remain in business. He said it wasn't easy for tax havens to be created and so there was no immediate threat.

"Take Russia for example. They are trying to figure out how to make Moscow an international financial centre. They have an established banking business, but investors are not confident in the region. This confidence needs time to develop."