Consistency remains a key feature in the Swiss legal market with few spin-off firms or new entrants. Although known primarily for its dominance in the corporate tax, banking and arbitration arenas, Switzerland also lays claim to world-leading practitioners across the business law and private client spectrum and Swiss lawyers earn 433 listings in our international guides as well.
Despite growing international criticism, Switzerland is still a popular base for corporations and wealthy individuals looking for an attractive tax jurisdiction. Its low tax rates and fiscal incentives are under increasing pressure from the European Union, the US and the Organisation for Economic Co-operation and Development and 2013 has been marked by a number of developments in the arenas of banking, tax and corporate law.
Tax transparency is a key concern for banks and high net worth individuals, with the Swiss tax authorities launching more investigations and clients showing greater awareness of their tax status. The Wegelin case, which saw the collapse of one of the oldest Swiss private banks after it pleaded guilty to aiding US customers to evade US tax obligations, has had a lasting impact. The aftermath has seen multiple changes in the regulatory sphere and increased pressure on the private banking industry has created a sharp increase in compliance work as both the banks themselves and their clients require advice on the new changes. Our corresponding business crime defence chapter has also seen an increase in listings, up to 28 in this edition. Below is a selection of these reforms, to highlight the wide-ranging issues being tackled:
• In February Switzerland signed the FATCA agreement, which imposes reporting requirements, ensuring that all income earned by US taxpayers and held in foreign accounts can be taxed by the US. As the US government is one of Switzerland’s harshest critics, it is hoped that this agreement will alleviate the pressure that the Bush and Obama administrations have placed on the Swiss government.
• Also in February, the Federal Council announced measures aimed at tightening the controversial flat tax regime, to apply fully from 2016. These new measures will increase the tax base for calculating direct federal tax and cantonal tax to seven times the cost of living (as opposed to five times as is currently the case). With a number of cantons already fully abolishing the flat tax scheme, it is anticipated that others will also take further steps towards either abolition or greater restriction of this increasingly unpopular system.
• In May Switzerland outlined plans to reform its corporate tax regime in order to counter criticism from the EU following the EU decision that the practice of ring-fencing – a practice where special tax breaks in the form of lower tax rates are given to foreign companies – amounted to unauthorised state aid and violated the 1972 Switzerland-EU Free Trade Agreement. Therefore, the steering committee in charge of what is known as ‘Corporate Tax Reform III’ has been charged with creating a tax system that remains competitive and attractive to foreign corporations whilst also alleviating the concerns of the EU.
This behavioural transformation has also led to a change in the legal environment, particularly in the private client field. While many lawyers in the past had a private client business almost as a sideline, that is no longer viable. Private client lawyers need to be aware of the latest tax developments, to ensure that they keep up to date and that the advice they give to clients is fully compliant with foreign tax requirements. Our corresponding chapter has also seen a marked increase, from 43 up to 47 practitioners featured this year.
2013 was also marked by a number of significant referendums on the topic of executive pay. The most noteworthy of these, the Minder Initiative, was voted on in March. Nearly 68 per cent of voters and the majority of Swiss cantons cast their votes in favour of the initiative, which introduced stricter controls on executive pay; this means that Switzerland is now among the list of countries with the most demanding corporate governance regimes worldwide. With the implementation of these changes into the Swiss Federal Constitution, public companies are now obliged to give shareholders a binding vote on compensation, and bonus payments such as golden parachutes or golden handshakes are now prohibited for members of corporate governing bodies. Another referendum that proposed a cap on executive pay at 12 times the lowest paid employee’s salary (known as the 1:12 initiative) failed with 65 per cent of the population voting against it. This stream of referendums has led to increased advisory work for lawyers in this sector, although numbers have remained steady in our corresponding chapters – 18 lawyers are featured in our corporate governance chapter (down from 19 in 2013) and 27 lawyers are listed in the management labour and employment chapter (up from 26 in 2013). A vote to look out for in the near future recommends a basic income for all adults irrespective of their work status – the organising committee is calling for a sum of 2,500 Swiss francs per month from the state. Towards the end of the year, organisers successfully submitted more than the 100,000 signatures needed to call a referendum on the proposal and this is anticipated to take place in the next few years.
Switzerland remains one of the major venues for arbitration and this is demonstrated in our research: our arbitration chapter lists the greatest number of practitioners once again with 75 arbitrators featured, the majority of which are in Geneva and Zurich. Unsurprisingly given Switzerland’s popularity in these fields as a destination for both companies and high net work individuals alike, the chapters with the most listings also include private client, corporate tax and commercial litigation. The chart below shows the continued strength of these practice areas in the Swiss legal market.
Outside of the traditionally strong industries of private client, tax and banking, the TMT field has also seen huge development recently – our corresponding chapter features 32 lawyers, rendering it the sixth largest chapter overall. The drive towards innovation and new technologies means that there has been an increase in this field of work and again here, international pressure has played a major role, particularly in the sphere of data protection. After evaluating the two decades old Swiss Data Protection Act in 2011, the authorities are now ready for reform and it is anticipated that changes to the Swiss law will be influenced by proposed EU reforms as well as the trend towards harmonisation of privacy laws worldwide.
In terms of the legal marketplace, there has long been talk of new entrants in the way of British or international firms, but this has still not come to fruition: the chart below highlighting the firms with the highest number of listings shows only one international firm. Many international law firms either prefer to work with Swiss national firms as opposed to opening up their own offices, or alternatively open up an international office practising foreign law. This appears to work well and is not expected to change in the near future.
Overall, despite a tightening of rules and regulations over tax and information disclosure, wealthy people are still flocking to the country they see as their go-to hub for legal advice, and the rest of the world will be watching closely to see how Switzerland responds to international pressures.
*Information taken from whoswholegal.com*