Wealthy in China need new tax haven as Switzerland U-turns on banking privacy
The agreement of Switzerland to disclose information on banking accounts in its territory, at the risk of its time-honored status as the world’s foremost tax haven, may prompt the wealthy worldwide, including Chinese nationals, to search for new shelters for their fortunes.
Switzerland, the world’s largest offshore financial center, announced the sea change in its policy on May 7, pledging to turn in detailed information on the banking accounts of foreigners in the nation, which represents a breakthrough in the global crackdown on tax evasion. The change marks a departure from the nation’s insistence over several hundred years on protecting the privacy of bank customers.
The change has been made apparently in response to the long-standing pressure of Western nations, notably Germany, France, and the UK, which have urged other nations to include Switzerland on a blacklist of “uncooperative tax havens,” due to the convenience for some enterprises and individuals worldwide to use their accounts in the country to evade tax and launder money.
The US and other Western nations have stepped up their pressure on Switzerland to change its banking policy, as part of their effort to crack down on tax evasion amid their dire financial straits.
The development coincides with an anti-graft campaign sweeping China. In 2013, the State Council issued a decree requiring Chinese residents to report their overseas assets and liabilities, violation of which are liable to just under 300,000 yuan (US$48,200) in fines for institutions and just under 50,000 yuan (US$8,000) for individuals.
According to Shanghai-based China Business News, Huo Jianguo, president of the Institute for International Trade, Economy, and Cooperation, under the Ministry of Commerce, pointed out the decree was meant to improve transparency with regard to the assets of Chinese nationals. Yang Xianyong, researcher at the Institute of Finance and Economy, under the Chinese Academy of Social Sciences, said that the decree means the government is preparing to levy tax on overseas assets.
As the world’s largest offshore financial center, Switzerland boasts over 300 private banking institutions, which manage US$2 trillion of offshore assets, or one third of global savings.
Many experts believe that with Switzerland facing mounting pressure on its operations of offshore financial centers, Singapore may overtake its status in the future. As the world’s second largest offshore center now, Singapore boasted US$1.3 trillion of assets, mainly owned by customers from Asia-Pacific and the Middle East, under the custody of its fund managers as of the end of 2012. Singapore also agreed on May 6 to disclose information on the banking accounts of US nationals and enterprises, in order to facilitate a crackdown on tax evasion by the US government.
Although most other tax havens, such as Liechtenstein, Cypress, Luxembourg, Monaco, Bermuda, and the British Virgin Islands, have pledged to take similar steps, rich people around the world can still transfer their assets to Panama and Dubai, among others, which have yet to pledge information disclosure for their foreign-owned bank accounts.