The proposal has strings attached. The Swiss want to pay a large monetary fine without being required to turn over any client names or client data, a move that would breach a Swiss tradition of bank secrecy stemming from the Middle Ages.

But the Justice Department is opposed to any deal that involves only money and does not include a handover of client names and data, sources briefed on the matter said. It also wants a deal in which by 2013, no Swiss banks hold undeclared offshore accounts for Americans, though it is unclear how such a watershed in Swiss financial secrecy would be achieved or monitored.

There are some signs that the IRS may in fact be unwilling to craft a deal without a requirement for a turnover of names. Case in point: in September, the agency began mailing an unusual, one-page questionnaire to American taxpayers who entered its voluntary disclosure programs in recent years.

The questionnaire, a copy of which was obtained by Reuters, asks taxpayers to answer “yes” or “no” to 10 questions regarding their undeclared offshore accounts. Questions include “did a representative of the foreign financial institution visit you in the United States regarding the offshore account or asset?”

The IRS questionnaire could be a warm-up to a broad request, known as a John Doe summons, to Swiss banks to disclose client data, sources briefed on the matter said.

UNUSUAL LETTER

In August, James Cole, the deputy attorney general and the second-highest ranking law enforcement official in the United States, wrote to Swiss officials in an unusual, three-page letter dated August 31 that the IRS and Justice Department intended to serve a John Doe summons on 11 Swiss banks if the banks did not turn over broad statistical data, not including client names, on their accounts. At least some banks turned over the data, according to sources briefed on the matter.

A fresh summons would mirror one served on Swiss bank giant UBS AG in 2008 that sought to force the bank to turn over 52,000 names of American clients. That summons was dropped only in 2010, more than a year after UBS averted indictment and reached a $780 million deferred-prosecution agreement with the Justice Department over charges it sold tax evasion services to rich Americans. UBS ultimately turned over 4,450 client names.

The Swiss are pushing for a civil settlement by year’s end, but any potential deal would likely not take place until next spring, according to sources briefed on the matter.

Switzerland, a noted tax haven that is the global capital of offshore private banking, holds 27 percent, or $2 trillion, of the world’s offshore wealth, according to a 2010 study by the Boston Consulting Group.

U.S. officials say Swiss banks and their American clients have yet to declare the bulk of the hidden wealth, and point to two recent IRS disclosure programs that brought in only $2.7 billion from 30,000 American taxpayers with accounts in 140 countries. “It’s a fraction of the total still out there,” said one U.S. government official briefed on the matter, adding that perhaps one quarter of the $2 trillion, or $500 billion, could be undeclared money held by American taxpayers.

Posted in Legal & Tax

By Lynnley Browning

(Reuters) – The government of Switzerland has proposed a multibillion-dollar settlement with U.S. authorities over allegations that it helped wealthy Americans avoid billions of dollars in U.S. taxes, according to sources briefed on the matter.

The proposed civil settlement, put forward in recent months by Swiss authorities to the U.S. Internal Revenue Service, would cover all banks in Switzerland, numbering about 355, sources briefed on the matter said. It could reach $10 billion or more, said a source briefed on the matter.

The deal would include some 11 banks now under criminal investigation — among them Credit Suisse AG and HSBC Holdings PLC — by the U.S. Justice Department, which suspects them of having enabled wealthy Americans to hide billions of dollars in assets in offshore accounts. Some experts view the deal as a long shot, in the face of an unprecedented crackdown by U.S. authorities.

Switzerland, which has watched the Justice Department indict scores of Swiss bankers and their American clients, is eager to resolve the matter once and for all, especially following a letter in August from a senior U.S. law enforcement official threatening even tougher action.

JUSTICE DEPARTMENT SKEPTICAL

The proposal has been met with skepticism from the Justice Department, which wants to exclude those 11 or so banks from a civil settlement, sources briefed on the matter said. Instead, these sources said, the agency wants to negotiate separate deals with these banks, possibly deferred-prosecution or non-prosecution agreements. It remains to be seen how the IRS and Justice would resolve any differences.

Michael Ambuehl, Switzerland’s state secretary for the Finance Ministry and the country’s chief negotiator on international tax matters, was due to leave Washington on Thursday after days of talks with IRS officials on the matter. Asked Thursday in Bern about the talks, Mario Tuor, a spokesman for Ambuehl, said that “the negotiations are ongoing” but declined to provide details.

Anthony Burke, an IRS spokesman, declined on Thursday to comment.

The IRS, which referred the names of the 11 banks to the Justice Department, is conducting a civil investigation of scores of other Swiss banks among the 355. Under U.S. legal procedures, a civil settlement with banks over their American customers’ unpaid taxes is generally the legal province of the IRS.

Credit Suisse AG, Switzerland’s second-largest bank, last July received a target letter from the Justice Department notifying it that it was formally under advanced criminal investigation. Others under investigation include HSBC Holdings PLC and smaller Swiss private banks and cantonal banks, including Basler Kantonalbank, Wegelin and Julius Baer .

One tax expert not involved in the talks cast doubt on any notion that a civil settlement would prompt the Justice Department to drop its criminal cases against the 11 banks. “It is difficult to imagine that the Justice Department, having done what had previously been impossible, that is, made strong criminal cases against Swiss banks violating U.S. law, will just walk away,” said Robert Katzberg, a white-collar criminal defense lawyer in New York with American clients of Swiss banks.

Posted in Legal & Tax

Social security system

The Swiss social security system includes the following schemes:

Old-age and survivors’ insurance (“Alters- und Hinterbliebenenversicherung, AHV”)
Disability insurance (“Invalidenversicherung, IVG”)
Military income loss insurance (“Erwerbsersatzordnung”)
Unemployment insurance (“Arbeitslosenversicherung, ALV”)
Occupational benefit plan (“Berufliche Vorsorge, BVG”)
Accident insurance (“Unfallversicherung, UVG”)
Sickness insurance (“Krankenversicherung, KVG”)
Family allowances (“Familienzulagen”)
Social security rates

Liabilities and contributions are different for employees, self-employed people and expatriates as outlined below.

a) Employment

Basically, the Swiss employer is fully liable to social security contributions in respect of his employees. This system, however, only applies to resident employers and non-resident enterprises having a permanent establishment in Switzerland.

The contributions are borne fifty-fifty by both employer and employees. The employer withholds the share of the employee, deducting it from the salary paid-out. The rates are, in general, based on the gross salary. The standard rates are:

Insurance
Employer
Employee
Total
Old-age/survivors’ insurance
4.2%
4.2%
8.4%
Disability insurance
0.7%
0.7%
9.8%
Military income loss compensation
0.15%
0.15%
10.1%
Unemployment insurance*
1.0%
1.0%
12.1%
Occupational benefit plan**
~5%
~5%

Accident insurance***
not liable
~1%-2%

Sickness insurance****
not liable
****

Family Allowances*****
~1.5%-3%
not liable

* The 1.0% rate only applies to wages up to CHF 126,000 per year. The excess (gross salary over CHF 126,000) is not subject to unemployment insurance.

** The calculation of the occupational benefit plan is complex. Taxable base is not the gross income, but the “coordinated salary” (being lower than the gross salary). The rates differ, depending on the age of the employee. Further, the law just provides for minimum rates and the enterprise may conclude better contracts for the employees. The table above just indicates an average contribution, calculated on gross income.

*** Different rates apply, depending on different danger categories.

**** Sickness insurance is compulsory for all inhabitants of Switzerland but employers are not involved in the system. Each inhabitant must have a sickness insurance directly. The premiums are different, depending on numerous factors. Average contributions for adults are: CHF 150 – 300 per person and month.

***** Contributions to family allowance schemes are regulated in cantonal laws and thus, vary considerably. Specific rules apply to resident alien employees if their children live outside Switzerland.

b) Self-employment

Entrepreneurs being classified as self-employed are not subject to all social security schemes mentioned above and the calculation of certain contributions differs from employees.

Insurance
Contribution
Total
Old-age/survivors’ insurance
7.8%

Disability insurance
1.4%

Military income loss compensation
0.3%
9.5%*
Unemployment insurance
not applicable

Occupational benefit plan
voluntary

Accident insurance
voluntary

Sickness insurance****
****

Family Allowances*****
~1.5%-3%

* The rates (aggregate of the 3 first-mentioned insurance schemes) are progressive between 5.116% and 9.013% for income up to CHF 53’100 per year. The maximum rates in the table above applies to income exceeding CHF 53’100 per year (flat rate).

b) No professional activity

Residents without any professional activity (e.g. students or retired people) have to pay social security contributions up to the age of 64 (women) and 65 (men). The contribution depends on (a) the pension income and (b) the world-wide net wealth. The maximum annual contribution per person is CHF 10’300.

For more information, please visit: taxation.ch

Posted in Legal & Tax

Resident individuals are subject to personal income and net wealth taxes.

Taxation of individuals in Switzerland

Resident individuals are subject to personal income and net wealth taxes. Partnerships (and similar groups of persons without legal personality) are transparent for tax purposes, the partners being taxed individually.

Non-residents deriving income from certain Swiss sources (see below) may be subject to certain withholding taxes.

Income taxes are levied by the confederation and also by the 26 cantons and their municipalities. The federal income tax is regulated in the Federal Direct Tax Act. There is no federal net wealth tax. The cantonal and municipal income and net wealth taxation is settled in cantonal tax laws.

By 1 January 2001 all cantons had to bring their income and net wealth taxes into line with the Federal Tax Harmonization Law. Subject to harmonization are mainly the concept of income and most of the deductions and allowances. The cantonal sovereignty in respect of the amount of deductions and the tax rates, however, is not affected by the Tax Harmonization Law. Thus, the tax burden will differ considerably also in the future, depending on the canton and municipality of which the taxpayer is a resident.

Residence

An individual is resident for tax purposes mainly if the centre of his vital interests is in Switzerland (and in the canton/municipality respectively). Key factors are where a person has a permanent home, where his family lives and where his most important personal and economic contacts are. This concept is similar to Art. 4 of the OECD Model Convention.

Tax residence, however, may also arise if an individual works in Switzerland for a period of minimum 30 days or if he stays in Switzerland (without working) for a period of minimum 90 days. He may be taxed as a resident for this period of time (pro rata temporis).

Resident taxpayers are subject to world-wide taxation in Switzerland, subject to unilateral exemptions and prevailing tax treaty provisions, of course. The most important unilateral exemptions are:

real estate abroad, and
permanent establishments abroad
The exemption with progression method applies to such income and net wealth.

Non-resident taxpayers may be subject to Swiss taxes only with respect to income from certain Swiss sources. Important examples are:

income from Swiss real estate (assessed tax)
income from business performed in Switzerland and permanent establishments located in Switzerland (assessed tax)
employment income performed in Switzerland or on bord of international aircraft/ships/trucks if paid by an employer being resident in CH or having a permanent establishment in CH (withholding tax)
directors’ fees (withholding tax)
interest secured by mortgage on Swiss real estate (withholding tax)
pensions and similar payments related to a former employment in Switzerland (withholding tax)
income from certain Swiss retirement funds (“gebundene Selbstvorsorge”), excluding the public old-age/survivor/disability insurance (withholding tax)
Very often, however, the right to levy these taxes is also restricted by tax treaties.

For more information, please visit: http://taxation.ch/

Posted in Legal & Tax

Tax-privileged operations may take place within the following forms, all of which are variants of the base:

Switzerland Tax Treatment of Offshore Operations

The “Bonny Decree”, which provides for federal assistance in the form of a federal tax holiday for up to ten years for companies bringing economic value-adding activities to specific regions in Switzerland, ended in 2008. Most cantons also grant tax holidays to companies bringing economic value-added functions and creating significant new jobs for up to ten years.

Holding Companies:

For federal tax purposes a company is defined as a holding company if it holds either a minimum of 20% of the share capital of another corporate entity or if the value of its shareholding in the other corporate entity has a market value of at least 2m Swiss Francs (known as a “participating shareholding”).
The Swiss holding company was a particular target of the OECD’s ‘unfair tax competition’ initiative, and in 2004 an agreement was reached between Switzerland and the OECD whereby information about holding companies would be shared by Switzerland in circumstances where there was prima facie evidence of fraud.
Although the definition of a holding company varies among cantons a corporate entity is a holding company for cantonal corporate income tax purposes so long as it either

• derives at least 51%-66% of its income from dividends remitted by the subsidiary; or
• holds at least 51%-66% of the subsidiary’s shares.
Generally speaking foreign dividends remitted to a Swiss company and any capital gains realized by a Swiss company on the sale of shares in a foreign entity in which it holds a stake are taxable in Switzerland unless they are remitted to a company which by Swiss fiscal law is defined as a Swiss “holding” company.
Swiss holding companies enjoy the following relief from corporate income tax:
• At federal level a holding company pays a reduced level of corporate income tax on any dividend income received from the subsidiary or the company in which it holds a “participating shareholding”. The reduction in the level of corporate income tax payable depends on the ratio of earnings from “participating shareholding” to total profit generated.
• At cantonal or municipal level no corporate income tax is payable on income represented by dividends so long the corporate entity meets the cantonal definition of a holding company.
Furthermore holding companies which hold a minimum of 20% of the share capital of a subsidiary pay reduced corporation tax on any capital gains made on the sale of that shareholding so long as
• the shareholding was held for at least one year and was purchased after 1st January 1998; or
• the shareholding was purchased before 1st January 1997 and will be disposed of after 1st January 2007.

Fribourg is currently considered the best canton in which to locate a holding company for corporate income tax purposes.

http://www.telegraph.co.uk/

Posted in Legal & Tax