Monday, October 29, 2012

List of killer loopholes in the Swiss "Rubik" agreements

We have written plenty about the useless (and immoral) Swiss tax deals with Britain, Austria and Germany, which have been designed to kill moves to greater transparency in Europe and particularly to stymie moves to strengthen the current lead transparency initiative, the European Savings Tax Directive.

Here is a short blog as a reminder, summarising the main loopholes in the Rubik model. 
  • Foundations, discretionary trusts and other ‘ownerless’ structures –standard tax evasion vehicles – are deliberately and explicitly outside Rubik’s scope. Such structures are slippery: while they will ultimately benefit someone (an Italian tycoon, say), that person is not legally identified as the beneficial owner or beneficiary: the assets are ‘ownerless’ and therefore outside the scope of a Rubik deal. See Section 3.1 here. (For an exploration of how trusts work, see our primer In Trusts We Trust.) 
  • Insurance ‘wrappers.’ An insurance ‘wrapper’ is bit like a trust, where the Italian tax evader is entitled to all the economic benefits from the assets in question, but legally speaking it is the insurance company that is the beneficial owner. The legal beneficial owner is not identified as Italian, so it is outside the scope of a Rubik deal. (Section 3.2.)
  • Commercial companies. Only domiciliary companies falling under Swiss definitions are in scope – and that excludes any untaxed offshore company from somewhere like the Cayman Islands, for instance, where it can be pretended they have a ‘commercial’ purpose (Section 3.3).
  • Foreign bank accounts, trustees. Move your assets from a bank's Swiss subsidiary to a Singapore subsidiary, and you fall out of scope. Or if a Swiss-based trustee manages, say, a Bahamas trust with account in the Bahamas, this is outside Rubik's scope. (Section 3.4) 
  • Fees, donations, loans, royalties. Rubik only includes investment gains on “bankable” assets. So if your assets are in a safe deposit box in Zürich, or your profits are distributed as, say, a ‘consulting fee’, these assets are not ‘bankable” and are outside Rubik’s scope (Section 3.5).
  • Take your income as a 'loan' (which never gets paid back.) Section 3.7
  • Defer, then move. Rubik lets you defer all your income until you move to another country. So you might set up a deferred pension – then retire to sunny Portugal with your untaxed pension pot, which no bilateral Swiss- Italian deal could touch. Only the EU’s multilateral approach could work.
For a longer (but still clear and brief) explanation of each of these, see Section 3 in our original analysis of the UK-Swiss Rubik deal. See also:
  1. Oct 25 -  Merkel’s Swiss Tax Pact Faces Veto as SPD Flexes Pre-Vote Power
  2. Oct 22 - Top tax expert Philip Baker skewers UK-Swiss tax deal
  3. Sept 24 - list of expert testimonies at German Bundestag
  4. Sept 23 -  Press Releases: Italy, Belgium, Greece must not sign "Rubik" tax deals with Switzerland. They are a swindle
  5. Sept 18 - Crucial battle on tax transparency in the German Bundestag
  6. Aug 25 - It's official: Swiss admit purpose of Rubik is to kill EU transparency
  7. April 16 - New paper: why automatic exchange is superior over withholding taxes
  8. March 20 - The UK sells its tax sovereignty in a massive boost to offshore tax abuse by Switzerland. Tax Research 
  9. Oct 2011 - Original analysis of the UK-Swiss deal
  10. Tax Justice Network resource on information exchange
  11. Best of Both Worlds - an in-depth expert level resource on the EU Savings Tax Directive, and Rubik
  12. Towards Multilateral information Exchange - an in-depth briefing paper
  13. The Mechanics of Secrecy - TJN page looking at how secrecy works

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