Tax deal may help Swiss banks keep Italian clients

Zurich

SWISS asset managers, faced with the prospect of an exodus of Italian funds, have won a reprieve.

An agreement to share tax information among the two nations signed on Monday means Italy will remove Switzerland from a black list, enabling Italians to come clean on undeclared Swiss funds on more favourable terms while keeping their money where it is.

Italy is counting on a voluntary disclosure programme to flush out undeclared assets estimated at about 160 billion euros (S$245 billion). While there are no official figures for how much of the hidden money may be in Switzerland, more than two-thirds of funds that surfaced in Italy's most recent amnesty were from the Alpine nation, a sign of the potential hit to Swiss banks.

The deal gives the asset managers, already grappling with costly investigations from the US to France, a chance to retain clients even as bank secrecy is abandoned.

"This agreement is very good for Swiss banks, we needed it desperately," said Lars Schlichting, a partner and attorney-at-law at KPMG Holding in Lugano, Switzerland. "Without it we could have lost all Italian clients because we cannot have undeclared money anymore."

Italian clients will have to pay between 7 per cent and 12 per cent of their secret assets in taxes and penalties if they voluntarily disclose accounts to the authorities, compared with as much as 40 per cent if Switzerland hadn't reached the agreement, Mr Schlichting estimated.

"Italy was the biggest remaining market, for which a solution on undeclared assets had to be found," after the UK, France and Germany, said Andreas Venditti, a banking analyst at Vontobel in Zurich. "Banks may be facing billions of gross outflows, but the biggest clients will probably keep their accounts here after declaring them."

KPMG has already advised about 300 Italian clients this year on voluntary disclosure, starting with just three or four a week in January and increasing to about 70 last week, Mr Schlichting said. Of the 300 clients, only one decided to withdraw all money from Switzerland for personal reasons, while some clients chose to add to funds here after declaring them, he said.

"Italian individuals have a lack of trust toward the administration in Italy," said Louis Macchi, a Lugano-based tax adviser for PwC. "This is one of the reasons why I believe clients will continue to have their money in Switzerland."

Switzerland is the world's largest centre for offshore funds, managing about US$2.3 trillion for clients who don't reside here, according to estimates by the Boston Consulting Group. BLOOMBERG