The Ethics of Banking: Conclusions from the Financial Crisis (Issues ...

110 8 The “Banking Secret”, the Right to Privacy, and the Banks’ Duty to Confidentiality
A further question is whether the Swiss authorities have any ethical duty to
support tax investigations from abroad, when these are based on no more than
suspicious facts or even dragnet investigations. In this case, restraint appears to
be advisable. For one thing, Switzerland’s right to use banking secrecy in order
to attract international capital must be recognized. If capital is swayed by stricter
banking secrecy to deposit money in Switzerland, Switzerland cannot be expected
suddenly to minimize or even give up this comparative advantage by assisting tax
investigations from abroad. The Swiss institutions can rightly argue that they are not
responsible for the perhaps excessive tax rates of neighboring countries, and moreover,
that a country has no ethical duty to enforce the collection of excessive taxes
imposed by neighboring countries, or to support the recovery of such taxes.
Progressive income tax is not a natural right that every country has to respect
and implement. Tax avoidance in the context of unduly high progressive tax rates
does not contravene international private law, and need not be penalized by every
country.
For Germany, the disparity between German tax rates and those of neighboring
countries is beneficial at least to the extent that it prevents the “hungry” German
revenue authority from turning the tax screw any tighter. Nevertheless, it has unfortunate
consequences for distributive policy, since it enables only the wealthy classes
in Germany to reduce their tax burden by moving their capital, a form of anti-tax
protest that is not an option for the average person. This can undoubtedly be seen as
the Achilles heel of Swiss banking secrecy, and concerns are raised repeatedly by
critics based in Switzerland.
As a fundamental principle in a globalized economy, smaller countries can gain
an advantage if they introduce lower domestic tax rates, thereby attracting foreign
capital from heavily populated neighboring countries with high tax rates – especially
countries whose citizens speak the same language. The loss of domestic tax
revenue resulting from the lower tax rates can be more than balanced out by the capital
inflows they attract, and the resulting additional tax payments or interest earnings
from the accounts held in the banks. In the long term, this comparative advantage of
small countries can undermine the tax basis of large countries to such an extent that
they are forced to cut their tax rates substantially. This trend explains why advocates
of the harmonization of tax rates among EU Member States are becoming
increasingly vocal. The outcry is loudest in Germany, where high tax rates are coming
under pressure from several smaller German-speaking neighboring countries
simultaneously.
Tax harmonization within Europe is probably inevitable. But it is pointless to
believe this will be an upward harmonization, toward higher average tax rates. Any
harmonization will be downward, toward lower tax rates, and will probably herald
the end of the fiscal state in Europe. The pressure exerted by Switzerland on the
tax rates of EU Member States cannot be criticized, because even if Switzerland
were to raise its tax rates and water down its banking secrecy, pressure would still
come from countries like Austria, Liechtenstein and Luxembourg. Initiatives by the
German government, toward the end of 2002, to grant an amnesty for the retrospective
reporting of investment income parked abroad and not declared for tax