Why does Mitt Romney Put His Money in Swiss Banks?

Q: What are the advantages of Swiss bank accounts?

A: The Swiss franc is the major (legal) benefit of keeping one’s money in a Swiss account. By transfer American dollars to the Swiss franc, Americans are not tied to fluctuations of the dollar on currency markets. And, as The Atlantic explains, the franc holds its value well, so the risk that one’s holdings in francs are devalued due to inflationary monetary policy is low.

The Atlantic:

[The Swiss Franc] a safe-haven currency — and that makes their banks safe havens too. The Swiss are famous for their fiscal prudence and low inflation, which makes their currency particularly strong. That’s even more true now thanks to the euro crisis.

Q: Is Switzerland the best place to get these advantages?

A: Not so much anymore. Hiding money in Switzerland is still good for currency stability, but not as much if you want to hide money from the IRS.

The Wall Street Journal explains:

It’s getting harder for tax evaders to find places to hide money, now that Switzerland’s vaunted veil of bank secrecy has been pierced and few alternatives are proving as secure.

In recent years, there has been a concerted move by the U.S. and others to force tax havens to comply with new and existing international agreements on taxes and money laundering.

Q: Have any countries become better alternatives to Switzerland?

A: The WSJ continues:

As a result, small countries that had flourished as offshore tax-evasion havens or aspired to join their ranks have lost their luster, said David Marchant, the publisher of Offshore Alert, a newsletter covering tax-haven activity. These include Panama in Central America, Antigua and Barbuda in the Caribbean and Nauru and Vanuatu in the Pacific.

Q: Are Swiss bank accounts legal?

A: Yes, as long as you report your holdings to the IRS.

The Atlantic on Romney:

It’s entirely possible that Romney really was just hedging against the dollar. That’s the legitimate reason a very wealthy person would want a Swiss bank account. The not-so-legitimate reason is the secrecy — to hide money from the IRS.

Q: How do Swiss bank accounts enable illegal activities?

A: The New York Times:

Unlike in the United States, tax evasion in Switzerland is not illegal. Federal prosecutors contend that they, not Switzerland, have jurisdiction over any violations of United States tax laws on American soil.

Q: How is is tax evasion not illegal? People still have to pay taxes right?

A: Yes, the Swiss still have to pay taxes, but the penalty for under-reporting one’s holdings is a fine, not jail.

Transparency International delves into the law’s complexities:

The distinction between tax fraud and tax evasion is particular to Switzerland. Swiss fiscal law is essentially based on self-declaration of income and asset values. In the case of tax evasion, the tax payer “omits” to declare something, for instance by incorrectly or partially completing their tax return. In contrast to most countries, Switzerland does not regard this behaviour as a criminal offence. Rather, it treats tax evasion as an infringement of the law punishable by fine, punitive taxes or additional taxation and at the behest of the tax authorities. It classifies as “tax fraud” the submission of falsified documents, such as salary statements or accounting records. Tax fraud is liable to criminal prosecution in Switzerland.

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