New wave of wealth

While Switzerland is enjoying healthy investment from the US, it is still awaiting OECD recognition about tax transparency, says Matthew Shayle

Despite difficulties during the last couple of years, there seemed to be real optimism about the role that Switzerland would continue to play in the world's private wealth sector (see 'No cause for concern?'). Now, this positivity has been fleshed out by some industry statistics, which make remarkable reading and are reflected in the volume of work under which the Swiss legal profession seems to be heaving.

In the light of the qualified intermediary-regime-linked UBS case and the subsequent 2009 Swiss/US information exchange agreement, the imposition of Foreign Account Tax Compliance Act (FATCA) and the continuing (although, it is hoped, concluding) negotiations between the US and the Swiss banks on information exchange, it was widely anticipated that US wealth held in Switzerland would diminish quickly and substantially.

The initial fear was that the overall number of assets held under Swiss control would be dramatically reduced. The Swiss government, however, remained quietly confident that Switzerland could continue to be a jurisdiction for discerning private investors, and the recent figures suggest that this confidence - and the government's strategies - was justified.

Evidently, Switzerland has not suffered from the anticipated exodus of wealth following the attention - and subsequent agreements and enforcement actions - heaped on it by the Financial Action Task Force (FATF), the US and the UK, among others. Instead, it has benefited from a wave of new wealth, notably from the US itself.

The rationale behind this uplift in demand seems to be that Switzerland, having been through the process of confronting the demands of foreign governments for mutual tax assistance and reasonable information exchange, has stolen a head start on the other serious wealth management centres of the world, each of whom can expect to be held to account in a similar manner. The Swiss 'white money' government policy seems to be bearing fruit, with its emphases on professional excellence, political and economic stability, and financial expertise offering foreign investors enough of an incentive to call on the jurisdiction with their personal wealth.

All in all, it seems that US investors have not been put off Switzerland. For example, the US Treasury's 2013 annual report on the subject of US investments in 'overseas' securities places Switzerland in seventh place on the list of jurisdictions in which Americans have invested their funds; the report states that US$333bn were invested in Switzerland at the end of 2012, up from US$292bn the year before.

Rubik in hindsight

Also, Swiss hopes that the country had weathered the global compliance storm early, and therefore gained a head start on other wealth management jurisdictions, seem to have been justified by the imposition of the UK's 'mini-FATCA' agreement on its linked offshore jurisdictions. The terms of those agreements require detailed transactional data to be sent to the UK by banks in those offshore jurisdictions, giving the UK government rather more information than domestic UK tax legislation would suggest is necessary; this is of particular relevance to remittance-basis taxpayers with accounts in those countries.

By contrast, the Swiss/UK Rubik agreement requires the Swiss banks of remittance-basis taxpayers to provide relatively minimal information, with anonymity guaranteed for the account holder (it now appears that anonymous Rubik account holders are required to declare that they are anonymous Rubik account holders on their UK self-assessment tax returns).

Despite the dissatisfaction felt 18 months ago when the Rubik agreement was announced, the general consensus among clients and advisers seems to be that it is a better option than the mini-FATCA agreements that are now coming into focus.

However, there are still ongoing issues. Switzerland seems to have emerged from several difficult years with its reputation and marketplace substantially intact, but it faces important unresolved matters such as:

• Swiss negotiators on behalf of certain Swiss banks are engaged in discussions with the US over their participation in the programme of information exchange and penalty payments agreed in principle by the Swiss government earlier in the year. Some banks (known as Band 1) are excluded from that agreement by virtue of the investigations already opened by the US.

• Switzerland remains on the Organisation for Economic Co-operation and Development's (OECD) shortlist of jurisdictions that have not met international standards for tax transparency. According to the OECD, "phase two" reviews showed that Switzerland (alongside the BVI, Luxembourg, Seychelles and Cyprus) is "non-compliant", whereas certain other jurisdictions (including the US, the UK and the Netherlands) have become "largely compliant" with OECD tax transparency standards, moving towards "compliant" nations such as Japan, Ireland and Isle of Man.

Matthew Shayle is an associate in the private client group of Lenz & Staehelin's Geneva office

He writes a regular blog about Switzerland for Private Client Adviser