Switzerland and Germany have finally reached an agreement allowing the German government to tax the cash stashed by German citizens in Swiss accounts. Several countries have successfully made deals with Switzerland allowing them to not only compel their citizens to pay tax on income secreted in Swiss banks, but also repatriating income that was illegally earned by their citizens.
The former category comprises largely of rich countries whose citizens may not be engaged in illegal economic activity per se, but who are nonetheless defrauding their own government by not paying taxes due on their entire income, particularly income accruing from savings. The latter category consists mostly of developing countries, whose politicians/drug lords may have secreted ill-gotten wealth or its productive sectors may, through under or over-invoicing, illegally retained income abroad. The most prominent name that comes to mind in the latter category is of Ferdinand Marcos of the Philippines.
Switzerland thus has made different deals with different governments. For example, in August of 2009, the Swiss UBS Bank ended an eight-month legal battle with US authorities by agreeing to provide the names of 4450 US account holders (the US had requested the names of 52,000 clients) who the Internal Revenue Service (IRS) suspected of using Swiss banking secrecy laws to avoid paying up to 3.7 billion dollars in back-taxes and penalties. In addition, the Bank paid 780 million dollars to the IRS because it admitted defrauding the US government by helping US nationals hide money from the IRS. The Swiss have also agreed with the US and French governments to impose and repatriate a withholding tax on accounts held by US and French nationals. The account holder would then be issued a certificate that he/she would be able to declare to the IRS/French tax collecting agency and claim credit or else the account holder would opt not to declare the certificate, which would bar him/her from claiming credits.
Last year, the British and the Swiss governments agreed to begin negotiations ensuring that Britons begin to pay the right amount of tax on their savings held in secret Swiss accounts. In short, an increasing number of countries are approaching the Swiss to negotiate deals that would ensure that their nationals pay all the taxes due on their entire savings, irrespective of where they are held.
A Swiss magazine, Schweizer Illustrierte, in its November 19, 1991 issue, revealed that India leads with almost 1500 billion dollars in Swiss accounts, (Sonia Gandhi is accused of about 2.2 billion dollars), followed by Russia 470 billion dollars, UK 390 billion dollars, Ukraine 100 billion dollars and China with 96 billion dollars. On April 8, 2011 the Indian government began negotiations with the Swiss whereby it would launch DTAA (double tax avoidance agreement) that would assist the Indian government to access the data of its tax evaders. A final ratification from the Swiss government is yet to be received, which is expected by the end of 2011.
Pakistan to date has not yet approached the Swiss government for negotiations on a deal. The focus has been on the 60 odd million dollars that are attributable to President Zardari and his immediate family. A person-specific approach is short-sighted from the perspective of a country that has been unable to enhance its revenue base to include the country's rich - accounting for Hillary Clinton's constant refrain that the Pakistanis must begin to tax their elite. Thus it is critical for the government to begin negotiations on the same pattern as the Indian government in an effort to ensure that our nationals begin to pay tax on their savings.