941 lines
53 KiB
Plaintext
941 lines
53 KiB
Plaintext
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About the Editor
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Adam Starchild can occassionally be persuaded
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to take time off from his private entrepreneurship
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activities to write. During these interludes he
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has written over a dozen published books and
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hundreds of magazine articles, primarily on
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international business and finance. Four of his books
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have been on tax havens, the earliest in 1978, and the
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most recent in 1993. His articles have a appeared in
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a wide range of publications around the world --
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including Euromoney, International Living,
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The Futurist, Tax Planning International,
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Trusts & Estates, and many more.
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Discretionary Accounts
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If you have something on the order of $100,000 to
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invest (depending on the bank, more at most of them),
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you might consider a discretionary account with a Swiss
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bank. The bank will manage the investment for you,
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according to criteria you define. The investment will
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move among markets and currencies and instruments,
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according to the bank's best judgment.
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For this sort of operation, you should consider
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Geneva's private banks, rather than the large
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nationwide Swiss banks. Most of these banks require a
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$250,000 minimum investment. Remember that most of the
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smaller Swiss banks (except for Baer and Vontobel,
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which are listed on the Swiss stock market) do not
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publish their balance sheets. Many of them will not
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accept business without an introduction. This is not a
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matter for a first-time overseas investor to undertake
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with only a book as a guide.
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The leading Swiss private banks are Pictet,
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Lombard Odier, and Hentsch in Geneva. (Hentsch will
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take an account with $100,000, but the others probably
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will not.) They do not welcome walk-in clients. Two
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other private banks are a bit more accessible.
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Gutzailler, because it is a Eurobond issuer, and
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Vontobel, because it does corporate finance. It is
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possible to use a corporate banking relationship as a
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doorway to private banking services at these banks,
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which is why they are included in the listings at the
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end of this chapter.
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Swiss banks have developed the gold storage
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business into a fine art. Although the days of sales
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tax-free gold buying in Switzerland are over, the fee
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for storing your gold in Switzerland is still quite
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low. The minimum for having a Swiss bank store your
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money is one kilogram (2.2 pounds) or 30 gold coins. It
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is perfectly legal for Americans to buy and store gold
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outside the United States. You do not have to declare
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to any authorities that you own gold abroad in any
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amount. However, you should declare for U.S. taxes any
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capital gain from a sale of gold.
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Despite these options, most foreigners in
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Switzerland have simple bank accounts. Most of these
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are not numbered accounts, but ordinary name accounts.
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The minimums for ordinary accounts (which vary by bank)
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are much lower. You can arrange for your bank to keep
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your statements for you or send them in a plain
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envelope once a year. You can work out a code with your
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bank to be sure that, when you call, the person on the
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other end of the telephone actually is you. Most common
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is to give your mother's maiden name.
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The largest banks operate throughout the country.
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Private banks are concentrated in Geneva because most
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of their clients historically were French.
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Many Swiss bankers (and even bank employees at the
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bottom of the totem pole, such as tellers and
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switchboard operators) speak English. They also speak
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German, French, and Italian as a matter of course and
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frequently speak other languages as well, such as
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Spanish.
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Still the safest wealth protection haven
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Based on liquidity ratio (a function of how easily
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a bank can cover its outstanding obligations by selling
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off its assets), the following banks are the safest in
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Switzerland, and perhaps the world.
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These banks will open accounts for new clients
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only if they are known to the bank or are recommended
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by an advisor or correspondent with whom the bank is
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familiar.
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Banque Financiere De La Cite
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Banque Lausannoise de Portefeuilles
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BFZ Bankfinanz
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Cambio Valorenbank
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Dreyfus Sohne & Cie
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Ferrier Lullin & Cie SA
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FIBI Bank (Switzerland) Ltd.
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Guyerzeller Bank
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PBZ Privatbank Zurich
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Ruegg Bank Zurich
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The Dutch connection
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One way to invest in a broad portfolio with a
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Swiss bank without too much money is through the Dutch
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mutual fund group Robeco (Rotterdamse Belegings Co.).
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The Dutch group was founded in 1929. The SEC doesn t
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approve of it because it is publicly listed and
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open-ended. (In the United States, publicly listed
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mutual funds are closed-ended.)
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In practice, this means that Robeco intervenes on
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the Dutch stock market to repurchase its shares or sell
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them to keep the price close to net-asset value.
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Legally, the funds in the group are incorporated
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investment institutions with variable capital.
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The Robeco group is the largest mutual fund
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management group in the world outside the United States
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and Britain, with funds under management topping $15
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billion. It offers four funds: Robeco, an equity fund
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aiming at worldwide blue chips; Rolinco, an equity fund
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aiming at growth but still prudent; Rodamco, a
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diversified international real estate investment
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company (whose largest investments are in the United
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States) aiming at appreciation and income; and Rorento,
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a bond fund, a fixed-interest accumulator trust aiming
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at earning interest and capital gains. Investors can
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switch among the funds without fees. The Dutch fund
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management group has opened a bank in Geneva, Banque
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Robeco (Suisse), and which acts as a distribution
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center for Robeco products outside the Netherlands.
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A few years ago, the Dutch government began to
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fuss about nondistributed earnings being reinvested in
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the funds and threatened to make trouble about getting
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identification from new clients (as part of a crackdown
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on tax evasion within the Netherlands). To help
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circumvent these developments the group opened its bank
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in Geneva. The whole operation still is essentially run
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out of Rotterdam, with the added advantage of Swiss
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secrecy and multi-currency efficiency.
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Deposits or withdrawals can be made in any major
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currency. The highly efficient computerized system
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automatically reinvests all dividends (without
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withholding taxes, as would be required were Robeco
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Swiss rather than Dutch). The minimum investment is
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$5,000, and you can divide it among up to four funds to
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best match your investment needs.
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These folks speak English well: Robeco, N.V., Heer
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Kobelweg 133, Postbus 973, NL-3000 Rotterdam, The
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Netherlands; tel. (31-10)465-0711; fax (31-10)465-1544.
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SWITZERLAND AND EUROPE
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1991 was Switzerland's 700th birthday, but there
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was no grand, flag-waving celebration. Throughout the
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year, cities and villages celebrated in their own way,
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with alpine yodeling and wrestling fests, fireworks
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over Lake Zurich, and ballet in Lausanne.
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This country -- made up of 26 highly independent
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cantons, embracing four languages -- is simply too
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diverse to host a big, nationalistic bash such as the
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United States put on in 1976, the Swiss explain.
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Seven hundred years ago, if legend is to be
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believed, three brawny peasants met on a pretty meadow
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called the Rutli at the foot of the steep climb to the
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St. Gotthard pass, then as now the most direct route
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from the upper Rhine to Venice and the silk routes
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leading east. The perpetual alliance they swore is
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usually considered the nucleus of the Swiss
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Confederation.
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The three men in the meadow 700 years ago were
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tribal chieftains of what later became the cantons of
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Schwyz, Uri and Unterwalden. They signed a treaty for
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mutual protection in the crisis of succession after the
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death of the Habsburg ruler Rudolf I. The Habsburgs'
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ancestral castle was not far away, and the men of the
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forest cantons worried that some more remote king might
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be less amenable to leaving them alone to collect
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bridge-tolls and provide guided mule trains.
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Twenty years later the neighbors in Lucerne were
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invited to join the loose confederation. Its influence
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spread, sometimes by persuasion and often by conquest,
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only after a resounding defeat by the French at
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Marignano in Lombardy in 1515 did the mountaineers
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decide to eschew foreign military adventures. That
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neither kept them from fighting among themselves for a
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few centuries more nor, since the country was
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desperately poor in natural resources, from hiring
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themselves out as mercenaries for others. The last
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survivors of that practice are the Vatican's Swiss
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Guards.
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But expansion has its limits. In December, 1992,
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the Swiss electorate voted against affiliation with the
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European Community.
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What should we make of the Swiss vote? Here is
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the richest country in Europe (and on some measures the
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richest in the world), in the middle of the world's
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largest trading bloc, saying it can stand back from
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closer union. On the face of it, it looks as though
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the Swiss have made a serious and uncharacteristic
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error, at least in economic terms. While the vote will
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not lead to any economic catastrophe, conventional
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wisdom suggests that it will clip something off future
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growth. Swiss firms live by their exports and, to some
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extent at least, they will find it harder to export
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across the border. They may be forced to push some
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production over to subsidiaries within the European
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Community. Perhaps some investment that would have
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gone to Switzerland will go elsewhere.
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It was fear that the brilliant Swiss economy would
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be damaged that encouraged the political leaders to
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press for membership of the European Economic Area. Is
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this a case of ordinary voters allowing their hearts to
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rule their heads against the advice of the
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establishment?
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The conventional view was that the decision would
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hinder future economic growth. It reckoned that as far
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as the stock market was concerned a combination of
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higher trade costs and lower gross domestic product
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growth would more than offset any advantages from non-
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membership such as lower interest rates and freedom
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from EC competition policy. By this theory the
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economic effects of a "no" vote would justify a
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permanent fall in Swiss share prices.
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This was an intriguing exercise, but of course a
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move in the stock market of between 5 and 10 per cent
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is not that much, given the scale of the swings that
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take place in securities prices every week. The
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implication for growth is perhaps more worrying. A
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major investment banking firm, Goldman Sachs,
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immediately published a crisis report reckoning that
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the diversion of investment following the "no" vote,
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and labor migration (skilled people leaving) might
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together chip 0.6 per cent off annual growth over 10
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years. That would be quite a lot, if it were to
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happen.
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But will it? There is a counter argument to be
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made, which is that staying outside the EEA might
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actually enhance Switzerland's economic performance. It
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runs like this.
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Switzerland happens to be in an extremely strong
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structural position. It has great strength in
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industries that look like being winners for the next
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decade or more. These include financial services (the
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three big banks and the Geneva-based fund management
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industry), pharmaceuticals (the three big chemical
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companies), food (Nestle, Suchard), and up-market
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tourism (St. Moritz, Klosters and Verbier).
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These are all areas of the world economy in which
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Japan and the newly industrialized countries cannot
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actively compete, and where the price of the product is
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not being constantly shaved by some new technological
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advance. By contrast, Switzerland is not strong in
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cars, aircraft, electronic consumer durables, computers
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-- all areas where European industry is, or is about to
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be, threatened by the Far East.
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In that sense it is better protected than most of
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the EC. Switzerland does have important industries in
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areas like machine tools, which are more open to
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international competition and might suffer if the
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economy were distanced from the rest of Europe, but
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much of its strength is in areas where it is quite well
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protected.
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Indeed in some of these areas, being outside the
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EC is a positive advantage. Take financial services,
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which accounts for 30 per cent of the value of the
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securities on the Swiss stock market. Swiss banks trade
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on their safety and their discretion. It was
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fascinating to see that foreign money actually flowed
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into Swiss securities following the vote. Switzerland
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was perceived as being a safer place to put cash if it
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remained outside the EEA, presumably for fear that at
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some future date the EC bureaucrats would get their
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fingers on those numbered bank accounts.
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In most of the other areas noted above, EEA
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membership is not really an issue. In pharmaceuticals
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there might be some modest disadvantage from staying
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outside, but the market is such an international
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"brain-based" one that it is hard to see any serious
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damage. Food products? Well, Nestle generates roughly
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97 per cent of its turnover outside Switzerland, and is
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not really dependent on exports across the Swiss
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national boundary into the rest of Europe. Tourism?
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Membership of the EEA is not an issue.
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So while there might be some modest disadvantage
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to Switzerland, the Swiss winners would be fine. Some
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sectors, in particular financial services, would do
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better by staying outside. The effect might therefore
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be merely to push the country even further towards its
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specialties. But since these are good growth areas that
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does not matter. One could even construct an argument
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that Switzerland will benefit by keeping apart from the
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rest of Europe.
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The Use of Tax Havens
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Tax havens are one of the most important subjects
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for an international entrepreneur, yet few understand
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and use them properly. One group discount them as
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hiding holes for dirty money, which is not a legitimate
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use for tax havens. Others think they are only for
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banking money after you have made it. Not true either.
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Money grows much faster if a tax haven is part of your
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business planning, and almost any international
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business has an opportunity to use tax havens. It is
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the purely domestic business, confined to one country,
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that cannot benefit from the international fiscal
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loopholes. Switzerland is a major financial center,
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but not generally a tax haven.
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Simply stated, a tax haven is any country whose
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laws, regulations, traditions, and, in some cases,
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treaty arrangements make it possible for one to reduce
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his overall tax burden. This general definition,
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however, covers many types of tax havens, and it is
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important that you understand their differences.
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No-Tax Havens. These are countries that have no
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income, capital gains, or wealth (capital) taxes, and
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in which you can incorporate and/or form a trust. The
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governments of these countries do earn some revenue
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from corporations; "no-tax" means that what you pay is
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independent of income derived through a company. These
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states may impose small fees on documents of
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incorporation, a small charge on the value of corporate
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shares, annual registration fees, etc. Primary
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examples are Bermuda, Bahamas, and the Cayman Islands.
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No-Tax-on-Foreign-Income Havens. These countries do
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impose income taxes, both on individuals and
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corporations, but only on locally derived income. They
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exempt from tax any income earned from foreign sources
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that involve no local business activities apart from
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simple "housekeeping" matters. For example, in such a
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haven there is often no tax on income derived from
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export of local manufactured goods.
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The no-tax-on-foreign-income havens break down into two
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groups. There are those that allow a corporation to do
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business both internally and externally, taxing only
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the income coming from internal sources, and those that
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require a company to decide at the time of
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incorporation whether it will be one allowed to do
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local business, with the consequent tax liabilities, or
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one permitted to do only foreign business and thus be
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exempt from taxation. Primary examples in these two
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sub-categories are Panama, Liberia, Jersey, Guernsey,
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Isle of Man and Gibraltar.
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Low-Tax Havens. These are countries that impose some
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taxes on all corporate income, wherever earned.
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However, most have double-taxation agreements many the
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high-tax countries that may reduce the withholding tax
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imposed on income derived from the high-tax countries
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by local corporations. Cyprus is a primary example.
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The British Virgin Islands is another, but no longer
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has a tax treaty with the U.S.
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Special Tax Havens. These are countries that impose
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all or most of the usual taxes, but either allow
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special concessions to special types of companies (such
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as a total exemption from tax on shipping companies,
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or movie production companies) or allow very special
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types of corporate organization, such as the very
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flexible corporate arrangements offered by
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Liechtenstein. The Netherlands and Austria are
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particularly good examples of this.
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To understand the precise role of tax havens, it is
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important for you to distinguish two basic sorts of
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income: (1) return on labor and (2) return on capital.
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The first kind of return is what you get from your
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work: salary, wages, fees for professional services,
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and the like. The second kind of return relates,
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basically, to the return from your investments:
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dividends on shares of stock; interest on bank
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deposits, loans and bonds; rental income; royalties on
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patents. It is the second kind of income, income from
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an investment portfolio, that tax havens are useful
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for. Forming a corporation or trust in a tax haven can
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make the second form of income totally tax free, or
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taxed so low that you will hardly notice. Certain types
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of businesses can be effectively based in a tax haven.
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If you publish a newsletter, for example, you might be
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able to set up the entire operation in a totally tax
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free country such as the Bahamas or the Cayman Islands.
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If your income comes from copyright royalties, perhaps
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on the computer program you invented, the Netherlands
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is famed as a base for sheltering royalty income.
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Tax havens are a very complex subject, but the
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hours you spend studying their use will probably pay
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you more per hour than the hours you spend directly
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earning an income -- an unfortunate commentary on the
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confiscatory taxation policies of most governments.
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For the best detailed information on tax havens,
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order The Tax Haven Report from Scope International
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Ltd., 62 Murray Road, Waterlooville, Hants., PO8 9JL,
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United Kingdom. Price is approximately US$135,
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including airmail postage worldwide, and they accept
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Visa or MasterCard.
|
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Just stop and think for a moment how much faster
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your money can grow if you are not paying out an
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average of 40% to a taxing government somewhere.
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THE SWISS INSURANCE INDUSTRY
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Insurance companies belong to one of the most
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important sectors of the economy in Switzerland. It is
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also extremely conservative and safe. In 130 years
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none have failed, a record that even Swiss banks cannot
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match. Unique tax advantages combined with
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conservative money management cause Swiss insurance
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products to perform much better than one might expect.
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Conservative does not have to mean low returns. (If
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the insurance company doesn't have to deduct losses on
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a lot of bad investments, it is much easier to maintain
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a conservative, safe, high return.)
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Swiss government insurance company regulation
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keeps investment portfolios at a nearly no risk level.
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Liquidity and valuation of investments are ultra-
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conservative. Only a maximum of 30% of investible
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funds may be put in real estate. Swiss real estate has
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always held the highest values, but this is ultra-
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conservatism at work. If it should go down, it might
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not be liquid enough to cover claims -- so let's be
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ultra-conservative and severely limit the exposure. A
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philosophy that a lot of American banks and insurance
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companies are probably now wishing they had followed --
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or at least their policyholders are wishing they had.
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Then just in case this isn't enough, Swiss
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insurance companies often carry their real estate
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holdings at less than half their present market value,
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allowing a very wide margin of price changes before
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safety can possibly be affected.
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Swiss accounting in general seems to be on the
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conservative side. Companies tend to have hidden
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reserves of millions, rather than the North American
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style of overvaluing assets to achieve a high stock
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market price for takeover bids. This conservatism
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applies all the more to the insurance industry.
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The Swiss insurance companies offer a greater
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range of services than the American investor is used
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to. In fact, the range is broader than that offered by
|
||
most Swiss banks. There are only about 20 insurance
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companies in Switzerland. This concentration makes the
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industry stronger, and easier to supervise, than the
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||
thousands of American insurance companies. There are
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no weak insurance companies in Switzerland, unlike the
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||
United States were insurance laws in many states permit
|
||
an insurance company to be formed with capital as low
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as $100,000, and licensed, empty insurance company
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||
shells are frequently sold in classified ads in The
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Wall Street Journal and other newspapers.
|
||
The industry is regulated by the Swiss Federal
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Bureau of Private Insurance -- a very strict regulator.
|
||
There is no rate competition -- the emphasis is on
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maintaining the strength of the insurer, and
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prohibiting risky investments (although it is unlikely
|
||
that a Swiss insurance manager would even think of
|
||
making a risky investment).
|
||
Regulation of private insurance companies has been
|
||
established by a clause in the Swiss federal
|
||
constitution since 1885. Contrast this to the United
|
||
States where insurance companies are often regulated
|
||
only by rules promulgated by a politically appointed
|
||
insurance commissioner, who expects to be employed by
|
||
an insurance company when the governor who appointed
|
||
him is retired in a few years.
|
||
BOOKS BY ADAM STARCHILD
|
||
|
||
|
||
It's Your Money: A Consumer's Guide to Credit
|
||
Books for Business
|
||
|
||
How to Develop and Manage A Successful Condominium
|
||
Books for Business
|
||
|
||
Business in 1990: A Look to the Future
|
||
anthology introduced and edited by Adam Starchild
|
||
University Press of the Pacific
|
||
|
||
Starchild & Holahan's Seafood Cookbook (co-author)
|
||
Pacific Search Press
|
||
|
||
Tax Havens: What They Are and What They Can Do
|
||
for the Shrewd Investor
|
||
Arlington House
|
||
|
||
Tax Havens and Corporations
|
||
Gulf Publishing Co.
|
||
|
||
Investing in the USA
|
||
Euromoney Publications
|
||
|
||
The Amazing Banana Cookbook
|
||
Lakewood Books
|
||
|
||
Everyman's Guide to Tax Havens
|
||
Paladin Press
|
||
|
||
The Tax Haven Story
|
||
PPI Publishing
|
||
|
||
Establishing Self Employed and Individual Retirement Plans
|
||
PPI Publishing
|
||
|
||
Building Wealth: A Layman's Guide to Trust Planning
|
||
AMACOM, publishing division of
|
||
the American Management Association
|
||
|
||
How to Develop Your Own Construction & Land
|
||
Development Business
|
||
Nelson-Hall Publishers
|
||
|
||
Tax Planning for Foreign Investors in the U.S. (co-author)
|
||
Kluwer Law & Taxation Publishers
|
||
|
||
The Seafood Heritage Cookbook
|
||
Cornell Maritime Press
|
||
|
||
Marketing Computer Hardware & Software in Latin America &
|
||
The Caribbean
|
||
Books for Business
|
||
|
||
The Tax Haven Report
|
||
Scope Books
|
||
|
||
|
||
You will find these and other books by Adam
|
||
Starchild listed in Books in Print at your public library
|
||
or bookstore. These books generally are not available
|
||
directly from the author, but most bookstores will order
|
||
them for you directly from the publishers. Those books
|
||
which are out of print may be obtained from the Books on
|
||
Demand Service of University Microfilms in Ann Arbor,
|
||
Michigan. Again your bookstore may place this order for
|
||
you, or you may obtain current price and ordering
|
||
information by calling University Microfilms.
|
||
|
||
The Shareware Principle Extended to Consulting
|
||
|
||
Offering this material on disk through shareware
|
||
distribution channels is an experiment. The principle of
|
||
"try before you buy" computer shareware is now well
|
||
established, and the author is now offering a test of
|
||
"try before you buy" consulting services.
|
||
Normally the author works with a client's own
|
||
lawyers and accountants, advising them on the comparative
|
||
advantages and legal structures available in the various
|
||
tax havens, while the domestic professionals then relate
|
||
that knowledge to the tax laws of the particular client's
|
||
country of citizenship and/or residence. The author's fees
|
||
for such consultations are normally $250 per hour plus
|
||
travel expenses. You now have the opportunity to study the
|
||
basic structure of that advice, and determine if you can
|
||
use it in your personal financial situation. There is no
|
||
set fee for the use of this program, and the author leaves
|
||
it to the individual user to determine how much use he has
|
||
derived from it.
|
||
If you read it and enjoy it as a book, but have no
|
||
particular use for the information except as information,
|
||
then a price similar to that you would have paid for a book
|
||
would be appropriate -- say $25. (The author's books on
|
||
tax havens sell for as much as $125.) If you are using this
|
||
program as a substitute for personal consultations, then a
|
||
substantially larger fee is requested -- a minimum of $250
|
||
would be appropriate. Checks should be made payable to
|
||
Adam Starchild and mailed to:
|
||
|
||
Adam Starchild
|
||
P. O. Box 917729
|
||
Longwood, Florida 32791
|
||
U.S.A.
|
||
|
||
It is understood that some readers of this type of
|
||
information may prefer to leave no trail by sending a money
|
||
order, or remain anonymous even to the author by sending a
|
||
money order or cash. That is perfectly acceptable. Others
|
||
may prefer to maintain proof of payment in order to take a
|
||
tax deduction for tax or investment information.
|
||
|
||
|
||
Swiss Secrecy: Not A Legend
|
||
|
||
Swiss banking is often identified in America with
|
||
banking secrecy. Popular media stories have created
|
||
two contradictory pictures: that Swiss secrecy hinders
|
||
law enforcement officers from prosecuting criminals,
|
||
while others claim that Swiss secrecy does not exist
|
||
anymore and is as full of holes as a Swiss cheese.
|
||
Neither is true.
|
||
The basic position in Swiss civil law is that the
|
||
information concerning a customer and the customer's
|
||
financial dealings is protected as part of the
|
||
individual's legal right to privacy. In Switzerland,
|
||
this has been made part of Article 28 of the Swiss
|
||
Civil Code, and not only protects the information, but
|
||
makes the person violating the secrecy liable to pay
|
||
damages to the customer. In addition, the banking law
|
||
makes it a criminal offense in Switzerland for a banker
|
||
to divulge information about a customer in violation of
|
||
the law, punishable by fine or imprisonment. Both the
|
||
bank and the bank employee may be subject to various
|
||
penalties if a violation occurs.
|
||
A bank can only disclose information when
|
||
authorized to do so under existing statutory provisions
|
||
or by a Swiss court order, which must be founded on
|
||
law. Secrecy is interpreted so broadly that it is
|
||
illegal for a bank to say whether or not a person is a
|
||
customer, since if the bank failed to do so it would be
|
||
implying that the person was a customer.
|
||
The right of secrecy is a right belonging to the
|
||
customer, not the bank. It is the customer's privacy
|
||
that is protected by law. The customer can waive the
|
||
secrecy, but the bank cannot. For example, the
|
||
customer may waive secrecy and ask the bank to give a
|
||
credit reference to a specific creditor. But such a
|
||
waiver is only valid if the customer acts voluntarily
|
||
and not under duress. Therefore, waivers that were
|
||
signed pursuant to foreign court orders compelling a
|
||
customer to sign a waiver may well be invalid. A
|
||
financial institution cannot ask the government for an
|
||
order waiving secrecy. Only the customer can waive the
|
||
secrecy.
|
||
Contrary to an opinion current in America, Swiss
|
||
secrecy is not absolute. It can be overridden by
|
||
statutory provisions which compel the giving of
|
||
information.
|
||
Such rules requiring disclosure of information --
|
||
usually with a limited scope -- can be found in Swiss
|
||
inheritance law (you really wouldn't want your
|
||
legitimate heir going into the insurance company with
|
||
your death certificate to be told they can't tell him
|
||
anything), in enforcement of judgments from creditors,
|
||
in bankruptcy or in divorce.
|
||
The most widely known limitation on secrecy is in
|
||
treaties concerning Swiss cooperation in foreign
|
||
criminal matters.
|
||
In a criminal investigation conducted in
|
||
Switzerland, of a Swiss crime committed by a Swiss
|
||
citizen, secrecy can be lifted by court order. The
|
||
treaties extend this possibility to foreign crimes by
|
||
foreign citizens in foreign investigations, but only in
|
||
the limited circumstances spelled out in the treaties.
|
||
Before a foreign legal assistance request for
|
||
Swiss financial records can be honored the following
|
||
conditions must be met:
|
||
1) Compulsory disclosure is only possible if the
|
||
offense that is being prosecuted is punishable as a
|
||
criminal offense in both countries (the requesting
|
||
state and Switzerland).
|
||
2) In tax cases assistance is available to
|
||
foreign prosecutors only if the investigated violation
|
||
of foreign tax laws would be qualified under Swiss law
|
||
as a tax fraud and not merely as tax evasion. Tax
|
||
evasion is simply the failure to declare income or
|
||
assets for taxation. Tax fraud is distinguished by the
|
||
fact that "fraudulent conduct" is involved. Normally
|
||
"fraudulent conduct" can only be assumed if forged
|
||
documents are used.
|
||
There is a special provision of the Swiss-United
|
||
States Treaty on Mutual Assistance in Criminal Matters
|
||
that provides Swiss legal assistance to U. S.
|
||
prosecutors even in tax evasion cases if they are
|
||
conducting an investigation against an organized crime
|
||
group.
|
||
3) As a general rule, the information obtained in
|
||
Switzerland through a legal assistance procedure may
|
||
not be used for investigative purposes nor be
|
||
introduced into evidence in the requesting state in any
|
||
proceeding relating to an offense other than the
|
||
offense for which assistance has been granted.
|
||
It must be emphasized that foreign authorities or
|
||
foreign courts cannot directly ask a Swiss financial
|
||
institution for information. Even in cases in which
|
||
legal assistance can be granted and therefore secrecy
|
||
is lifted, only a Swiss court order - which in these
|
||
cases is based upon a foreign request for legal
|
||
assistance - can validly lift secrecy.
|
||
Considering this, it can be said that secrecy is
|
||
strict and is only put aside in case clearly defined by
|
||
Swiss law and pursuant to Swiss rules. Secrecy is,
|
||
however, not absolute and does therefore not protect
|
||
criminals.
|
||
Switzerland has long served as a magnet for the
|
||
money of wealthy foreigners who perceive the world as
|
||
buffeted by over-taxation, over-regulation and
|
||
political turmoil. They are attracted, of course, by
|
||
the confidentiality and discretion that have been a
|
||
hallmark of Swiss bankers since the French Revolution,
|
||
when they offered financial refuge to French
|
||
aristocrats. In 1934 secrecy was enshrined into law.
|
||
|
||
|
||
|
||
|
||
|
||
Insurance Annuities
|
||
|
||
Swiss annuities minimize the risk posed by U. S.
|
||
annuities. They are heavily regulated, unlike in the
|
||
U.S., to avoid any potential funding problem. They
|
||
denominate accounts in the strong Swiss franc, compared
|
||
to the weakening dollar. And the annuity payout is
|
||
guaranteed.
|
||
Swiss annuities are exempt from the 35%
|
||
withholding tax imposed by Switzerland on bank account
|
||
interest received by foreigners. Annuities do not have
|
||
to be reported to Swiss or U.S. tax authorities. They
|
||
are not a foreign financial account for the purpose of
|
||
U.S. reporting requirements.
|
||
A U.S. purchaser of an annuity is required to pay
|
||
a 1% U.S. federal excise tax on the purchase of any
|
||
policy from a foreign company. This is much like the
|
||
sales tax rule that says that if a person shops in a
|
||
different state, with a lower sales tax than their home
|
||
state, when they get home they are required to mail a
|
||
check to their home state's sales tax department for
|
||
the difference in sales tax rates.
|
||
The federal excise tax form (IRS Form 720) does
|
||
not ask for details of the policy bought or who it was
|
||
bought from -- it merely asks for a calculation of 1%
|
||
tax of any foreign policies purchased. This is a one
|
||
time tax at the time of purchase; it is not an ongoing
|
||
tax. It is the responsibility of the U. S. taxpayer,
|
||
to report the Swiss annuity or other foreign insurance
|
||
policy. Swiss insurance companies do not report
|
||
anything to any government agency, Swiss or American --
|
||
not the initial purchase of the policy, nor the
|
||
payments into it, nor interest and dividends earned.
|
||
Earnings on annuities during the deferral period
|
||
are not taxable in the U.S. until income is paid, or
|
||
when they are liquidated, following exactly the same
|
||
tax rules as for annuities issued by U.S. insurance
|
||
companies.
|
||
Swiss annuities can be placed in a U. S. tax-
|
||
sheltered pension plans, such as IRA, Keogh, or
|
||
corporate plans, or such a plan can be rolled over into
|
||
a Swiss-annuity. (To put a Swiss annuity in a U.S.
|
||
pension plan, all that is required is a U.S. trustee,
|
||
such as a bank or other institution, and that the
|
||
annuity contract be held in the U.S. by that trustee.
|
||
Many banks offer "self-directed" pension plans for a
|
||
very small annual administration fee, and these plans
|
||
can easily be used for this purpose.)
|
||
Investment in Swiss annuities is on a "no load"
|
||
basis, front-end or back-end. The investments can be
|
||
canceled at any time, without a loss of principal, and
|
||
with all principal, interest and dividends payable if
|
||
canceled after one year. (If canceled in the first
|
||
year, there is a small penalty of about 500 Swiss
|
||
francs, plus loss of interest.)
|
||
A new Swiss annuity product (first offered in
|
||
1991), SWISS PLUS, brings together the benefits of
|
||
Swiss bank accounts and Swiss deferred annuities,
|
||
without the drawbacks -- presenting the best Swiss
|
||
investment advantages for American investors.
|
||
|
||
SWISS PLUS, is a convertible annuity account,
|
||
offered only by Elvia Life of Geneva. Elvia Life is a
|
||
$2 billion strong company, serving 220,000 clients, of
|
||
which 57% are living in Switzerland and 43% abroad.
|
||
The account can be denominated in the Swiss franc, the
|
||
U.S. dollar, the German mark, or the ECU, and the
|
||
investor can switch at any time from one to another.
|
||
Or an investor can diversify the account by investing
|
||
in more than one currency, and still change the
|
||
currency at any time during the accumulation period --
|
||
up until beginning to receive income or withdrawing the
|
||
capital.
|
||
If you are not familiar with the ECU, it is the
|
||
European Currency Unit, a new currency created in 1979.
|
||
It is composed of a currency basket of 11 European
|
||
currencies, and its value is calculated daily by the
|
||
european Commission according to the changes in value
|
||
of the underlying currencies. The ECU is composed of a
|
||
weighted mean of all member currencies of the European
|
||
Monetary System. Since the ECU changes its balance to
|
||
reflect changes in exchange rates and interest rates
|
||
between these currencies, the ECU tends to limit
|
||
exchange rate risk and interest rate risks.
|
||
Although called an annuity, SWISS PLUS acts more
|
||
like a savings account than a deferred annuity. But it
|
||
is operated under an insurance company's umbrella, so
|
||
that it conforms to the IRS' definition of an annuity,
|
||
and as such, compounds tax-free until it is liquidated
|
||
or converted into an income annuity later on.
|
||
SWISS PLUS accounts earn approximately the same
|
||
return as long-term government bonds in the same
|
||
currency the account is denominated in (European
|
||
Community bonds in the case of the ECU), less a half-
|
||
percent management fee.
|
||
Interest and dividend income are guaranteed by a
|
||
Swiss insurance company. Swiss government regulations
|
||
protect investors against either under-performance or
|
||
overcharging.
|
||
SWISS PLUS offers instant liquidity, a rarity in
|
||
annuities. All capital, plus all accumulated interest
|
||
and dividends, can be freely accessible after the first
|
||
year. During the first year 100% of the principal is
|
||
freely accessible, less a SFr 500 fee, and loss of the
|
||
interest. So if all funds are needed quickly, either
|
||
for an emergency or for another investment, there is no
|
||
"lock-in" period as there is with most American
|
||
annuities.
|
||
Upon maturity of the account, the investor can
|
||
choose between a lump sum payout (paying capital gains
|
||
tax on accumulated earnings only), rolling the funds
|
||
into an income annuity (paying capital gains taxes only
|
||
as future income payments are received, and then only
|
||
on the portion representing accumulated earnings), or
|
||
extend the scheduled term by giving notice in advance
|
||
of the originally scheduled date (and continue to defer
|
||
tax on accumulated earnings).
|
||
|
||
According to Swiss law, insurance policies --
|
||
including annuity contracts -- cannot be seized by
|
||
creditors. They also cannot be included in a Swiss
|
||
bankruptcy procedure. Even if an American court
|
||
expressly orders the seizure of a Swiss annuity account
|
||
or its inclusion in a bankruptcy estate, the account
|
||
will not be seized by Swiss authorities, provided that
|
||
it has been structured the right way.
|
||
There are two requirements: A U. S. resident who
|
||
buys a life insurance policy from a Swiss insurance
|
||
company must designate his or her spouse or
|
||
descendants, or a third party (if done so irrevocably)
|
||
as beneficiaries. Also, to avoid suspicion of making a
|
||
fraudulent conveyance to avoid a specific judgment,
|
||
under Swiss law, the person must have purchased the
|
||
policy or designated the beneficiaries not less than
|
||
six months before any bankruptcy decree or collection
|
||
process.
|
||
These laws are part of fundamental Swiss law.
|
||
They were not created to make Switzerland an asset
|
||
protection haven. In the Swiss annuity situation, the
|
||
insurance policy is not being protected by the Swiss
|
||
courts and government because of any especial concern
|
||
for the American investor, but because the principle of
|
||
protection of insurance policies is a fundamental part
|
||
of Swiss law -- for the protection of the Swiss
|
||
themselves. Insurance is for the family, not something
|
||
to be taken by creditors or other claimants. No Swiss
|
||
lawyer would even waste his time bringing such a case.
|
||
|
||
Contact information
|
||
The only way for North Americans to get
|
||
information on Swiss annuities is to send a letter to a
|
||
Swiss insurance broker. This is because very few
|
||
transactions can be concluded directly with foreigners
|
||
either with a Swiss insurance company or with regular
|
||
Swiss insurance agents.
|
||
When you contact a Swiss insurance broker, be sure
|
||
to include, in addition to your name, address, and
|
||
telephone number, your date of birth, marital status,
|
||
citizenship, number of children and their ages, name of
|
||
spouse, a clear definition of your financial objectives
|
||
(possibly on what dollar amount you would like to
|
||
receive), and whether the information is for a
|
||
corporation or an individual, or both.
|
||
One firm specializes in dealing with English
|
||
speaking investors, and everybody in the firm speaks
|
||
excellent English. They are also familiar with U. S.
|
||
laws affecting the purchase of Swiss annuities.
|
||
Contact: Mr. Jurg Lattmann. JML Swiss Investment
|
||
Counsellors AG, Dept. 212, Germaniastrasse 55, 8031 Zurich,
|
||
Switzerland; tel. (41-1) 363-2510, fax: (41-1) 361-074.
|
||
|
||
|
||
|
||
|
||
|
||
|
||
WHY SWITZERLAND?
|
||
|
||
|
||
Switzerland has long served as a magnet for the
|
||
money of wealthy foreigners who perceive the world as
|
||
buffeted by over-taxation, over-regulation and
|
||
political turmoil. They are attracted, of course, by
|
||
the confidentiality and discretion that have been a
|
||
hallmark of Swiss bankers since the French Revolution,
|
||
when they offered financial refuge to French
|
||
aristocrats.
|
||
Banking in Switzerland, a land of few natural
|
||
resources, has been immensely lucrative. Operating in a
|
||
country less than half the size of Maine, Swiss banks
|
||
control more than $400 billion in assets, making the
|
||
country the third-largest financial center in the
|
||
world.
|
||
For people with money to protect -- whether a
|
||
little or a lot -- Switzerland is traditionally
|
||
considered the world's safest repository. These days,
|
||
the Swiss can give Americans many reasons to leave
|
||
funds in Switzerland But the promise of total secrecy
|
||
in financial matters remains one of the greatest
|
||
attraction of Swiss banks.
|
||
|
||
|
||
|
||
|
||
The Withholding Tax
|
||
|
||
The Swiss impose a 35% withholding tax on interest
|
||
paid in Swiss francs. You can recover this money by the
|
||
simple expedient of declaring the interest to the IRS.
|
||
You will come out ahead doing this, because you will
|
||
receive a refund, if you are in the standard 28%
|
||
bracket and not subject to state or city income taxes.
|
||
However, the Swiss do not issue 1099 forms, and it may
|
||
be difficult to determine the appropriate exchange rate
|
||
for the dollar.
|
||
One way to avoid the withholding tax is to have an
|
||
account denominated in a currency other than the Swiss
|
||
franc. A certificate of deposit can be denominated in
|
||
Swiss francs, but held outside the country. However,
|
||
such accounts may be only as sound as the foreign bank
|
||
into which the Swiss bank placed your money. Another,
|
||
very common, way to avoid the withholding tax is to
|
||
have the Swiss bank act as your money manager, in what
|
||
is called a fiduciary account. All of the investments
|
||
are made outside of Switzerland, in whatever you tell
|
||
the bank to do -- mortgages, mutual funds, other banks.
|
||
The money is merely passing through Switzerland, and is
|
||
not taxed there.
|
||
|