Hans Rudolf Merz used an emergency debate in Switzerland’s Parliament on Wednesday to defend the country’s competitive position as a business location.

Free market economy 

Merz said that Swiss major banks were naturally concerned about the international crisis in financial markets.

He hailed Switzerland’s role in helping to maintain international financial stability in good times and in bad, in particular through its active cooperation with the International Monetary Fund and the Financial Stability Forum.

The finance minister said that UBS and other leading banks had a good working relationship with the Swiss federal authorities and central bank. He rejected calls by MPs for direct government intervention, saying it would not guarantee against future losses.

“In a free market economy the private sector must have responsibility for its decisions and business models. In difficult times we should not lose the confidence in the way the markets function,” Merz added.

Free exchange of goods and services

Merz touched on the controversy surrounding investigations into tax evasion by German and other nationals with secret bank accounts in Liechtenstein.

He stressed that discussions with the European Union over the Swiss banking secret were unrelated to the hundreds of raids conducted by the German authorities after they paid for stolen data on secret bank accountants held by foreign nationals in Liechtenstein.

The European Union has argued that the Swiss corporate tax regulations impair a free exchange of goods and services between Switzerland and the European Union in breach of the 1972 Free Trade Agreement’s ban on state aid.

Swiss Parliament has refused to negotiate the matter with the European Union, but agreed to a dialogue to encourage mutual understanding.

Merz claimed that Switzerland’s competitive position as an international business base of choice was at risk and called it vital that the position was not only held but if possible improved.

He announced a working group which will outline future corporation tax measures to this extend in the autumn.

Competitive tax burden

Merz claimed that no requests for assistance had been received from the German authorities related directly to the ongoing investigations into tax evasion.

He said he did no know whether the German authorities had acted within German law by paying an informer for stolen data, but called the move “unusual” under anyone else's legislation when used against friendly neighbouring states.

"The sovereignty of each state, however, – in particular with reference to its tax legislation – has to be respected,” Merz said.

He mounted a strong defence of Switzerland’s right to provide a well-regulated financial system with “an internationally competitive tax burden”.

“Switzerland is, however, no tax haven. Individuals and legal entities are taxed in our country in accordance with the law and economic efficiency,” Merz said.

“The banking secrecy was and is not absolute. It is framed by regulations designed to prevent possible abuse, such as breaches of personal data protection, money laundering, corruption and terrorism,” he added.

Withholding tax 

The finance minister claimed that Switzerland was at the forefront of the international fight against cross-border financial crime and had developed sound procedures allowing for the exchange of banking information with the relevant foreign authorities.

He rejected claims that the Swiss banking secret was the cause of tax evasion in other countries, but said these were usually motivated by economic, fiscal or private reasons.

On the subject of cross-border interest yields, Merz said that Switzerland had agreed to pass on a withholding tax of 15 per cent to the country of origin of taxpayers, a figure that will increase to 35 per cent from 2011.

“By comparison, Germany plans a similar levy, a form of withholding tax, of 28 per cent while the average tax burden of individuals in Switzerland is less than 30 per cent,” Merz concluded.

“With the interest taxation agreement the European Union accepted in response that Switzerland keeps its past practice to the banking secrecy,” he said.

Integrity of the Swiss financial system

Merz added that Switzerland’s political and economic stability, modern financial infrastructure and highly qualified workforce also contributed to its attractiveness, but that the banking secrecy was not just crucial to the country’s international financial position but central to the country’s value system.