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Contribution Details

Type Master's Thesis
Scope Discipline-based scholarship
Title The End of the Banking Secrecy: Impact Analysis on Swiss Firms' Stock Prices
Organization Unit
Authors
  • Aurélie Meyer
Supervisors
  • Jacqueline Haverals
Language
  • English
Institution University of Zurich
Faculty Faculty of Economics, Business Administration and Information Technology
Number of Pages 76
Date 2014
Abstract Text 1. Problem statement Over the years, Swiss politicians publically ensured and irreproachably guaranteed the Swiss banking secrecy, which was formally introduced in the Swiss legislation in 1934. Considering the fact that Switzerland does not own any scarce resources it could derive its wealth from, the country had to build its prosperity based on external businesses. In view of the fact that the Swiss financial sector accounts for over 10% of the country’s GDP, it obviously constitutes an important source of employment as well as a substantial factor for value creation. In truth, Switzerland developed a strong financial sector thanks mainly to its political stability, outstanding know-­‐ how and incredible discretion. Interestingly enough, foreign investors deposited their funds in Switzerland in order to benefit from high-­‐quality banking services despite the fact that interest rates were negative. Nevertheless, while assessing the importance of the banking secrecy to the Swiss economy it is important not to restrict its influence to the financial sector, as it most definitely has positive consequences on a wider set of industries such as tourism, luxury goods and many more. Swiss legislation encompasses an unconventional aspect, as unlike tax fraud, tax evasion is not considered a crime; this distinction often remained misunderstood by many foreign countries. The main issue arose because a substantial amount of funds deposited in Swiss banks by foreigners remained undeclared to the foreign tax authorities; thus, the banking secrecy allowed many individuals to evade tax and was therefore often denounced by foreign governments. Nonetheless, the Swiss financial sector would not be as advanced as it is today without its precious banking secrecy, which is fully recognized as a powerful advantage over analogous financial centers. The Swiss government succeeded in protecting its secrecy until 2009, when, following the UBS scandal, it officially counteracted its comparative advantage and released clients’ names to the US tax authorities. This breach opened the door to further foreign attacks, mainly arising from the European Union and the OECD; Switzerland was then constrained to weaken its secrecy and sign agreements such as the FATCA agreement with the US, the RUBIK agreements 2 with some European countries and the well-­‐known Multilateral Convention on Mutual Administrative Assistance in Tax Matters from the OECD. While Switzerland agreed to sign the OECD tax model after its creation, it refused to comply with article 26, which is relative to the exchange of information. Switzerland agreed to dismiss such reservations on March 13th 2009 in order to avoid being recorded on the OECD’s black list; this constitutes a crucial date in the history of the end of the banking secrecy. Even though it is extremely difficult to estimate the percentage of undeclared funds in the country’s assets under management, one can be certain that it is not negligible. Furthermore, considering that the Swiss government has been pursuing a ‘white money strategy’, which implies that undeclared funds are no longer allowed in Swiss financial institutions, Swiss banks are currently asking their foreign clients who are holders of undeclared money to leave their institutions if they do not wish to declare their funds to their home tax authorities. This is highly problematic for such clients as they only have a limited number of solutions. Even though one can certainly invest in valuable commodities or works of art, the resale options are then extremely limited. Alternatively one can declare one’s capital to the tax authorities; nevertheless, this option comes at a very high cost. Of course, storing the funds in a safe remains a valid alternative as long as the bills do not change in the future. Thus, the Swiss road to transparency implied by the end of the banking secrecy, as well as by the ‘white money strategy’, involves risks and costs; it is difficult to define the optimal solution for the foreign holder of undeclared funds. Swiss citizens who are owners of undeclared funds do not face such issues yet as the banking secrecy is currently still valid for them. Nonetheless, it may not remain the case for long as many professionals expect a fiscal amnesty in the near future. It is important to acknowledge the fact that Switzerland had no choice but to comply with international standards in tax matters and to improve its transparency as it was under such pressure from foreign governments. Moreover, in today’s interconnected world where trade between countries is highly developed, Switzerland could not afford to refuse international guidelines and isolate itself from the rest of the world. 3 This thesis aims at assessing the impact the end of the banking secrecy has on Swiss firms’ stock prices and more generally on the country’s economy. What will determine the long-­‐term effect on the Swiss prosperity depends greatly on the country’s capacity to accommodate to the requirements and its adaptation speed. In order to analyze what effect the Swiss government’s actions leading to the end of the banking secrecy have on the Swiss firms’ stock prices, the following hypothesis will be tested: H! : The Swiss government’s actions leading to the end of the Swiss banking secrecy have no impact on the Swiss firms’ stock prices H!: Else
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