Tax evasion and Swiss bank deposits

TY - JOUR

T1 - Tax evasion and Swiss bank deposits

AU - Johannesen, Niels

PY - 2014/3

Y1 - 2014/3

N2 - Bank deposits in offshore financial centers may be used to evade taxes on interest income. A recent EU reform limits the scope for this type of tax evasion by introducing a withholding tax on interest income earned by EU households in Switzerland and several other offshore centers. This paper estimates the impact of the withholding tax on Swiss bank deposits held by EU residents while using non-EU residents who were not subject to the tax as a comparison group. We present evidence that Swiss bank deposits owned by EU residents declined by 30–40% relative to other Swiss bank deposits in two quarters immediately before and after the tax was introduced. We also present evidence suggesting that the drop in Swiss bank deposits was driven by behavioral responses aiming to escape the tax - such as the transfer of funds to bank accounts in other offshore centers and the transfer of formal ownership of Swiss bank accounts to offshore holding companies - rather than repatriation of funds

AB - Bank deposits in offshore financial centers may be used to evade taxes on interest income. A recent EU reform limits the scope for this type of tax evasion by introducing a withholding tax on interest income earned by EU households in Switzerland and several other offshore centers. This paper estimates the impact of the withholding tax on Swiss bank deposits held by EU residents while using non-EU residents who were not subject to the tax as a comparison group. We present evidence that Swiss bank deposits owned by EU residents declined by 30–40% relative to other Swiss bank deposits in two quarters immediately before and after the tax was introduced. We also present evidence suggesting that the drop in Swiss bank deposits was driven by behavioral responses aiming to escape the tax - such as the transfer of funds to bank accounts in other offshore centers and the transfer of formal ownership of Swiss bank accounts to offshore holding companies - rather than repatriation of funds

KW - Faculty of Social Sciences

KW - Tax evasion;

KW - Capital taxation; Savings directive

KW - Tax havens

U2 - 10.1016/j.jpubeco.2013.12.003

DO - 10.1016/j.jpubeco.2013.12.003

M3 - Journal article

SN - 0047-2727

VL - 111

SP - 46

EP - 62

JO - Journal of Public Economics

JF - Journal of Public Economics

ER -