Tax evasion has been a major problem for any government. Aiming at collecting all budget receivables that are appropriate for the achievement of the objectives proposed by the government program and for keeping budgetary indicators accurate, with the consequence of raising the living standards of the population has been always the main goal. Tax evasion has become a phenomenon that, by its scale, shows either the weakness or the strength of a state or society.
One of the most used mechanisms of tax evasion is done in those financial areas called ‘tax heavens’ where there are laws with a particularly liberal and favorable tax regime.
These tax oases attract large capital, as well as personalities from the financial world, politics, sports, and arts. Taking advantage of the concessive regimes – Panama, the Bahamas, Luxembourg, Switzerland, etc. – has emerged a whole practice and schemes of tax evasion and avoidance of financial control. Like Barry Goldwater, an American politician, and businessman, once said about taxes: “The income tax created more criminals than any other single act of government.
Eradicating tax evasion is a target for the authorities in all countries, and United States is no exception to that. One of the biggest breaks in United States government history of fighting against tax evasion was the crackdown on Swiss accounts with the scandalous cases involving some of the oldest Swiss private banks like UBS AG, Wegelin & Co, Credit Suisse Group AG, French bank BNP Paribas, just to name a few. “This […] shows that no financial institution, no matter its size or global reach, is above the law,” said Attorney General Holder in the announcement of their guilty plea in Credit Suisse offshore tax evasion case (Department of Justice, 2014).
The Swiss Secrecy law banking system started in 1934 when countries like France and Germany pressured Switzerland to divulge depositor information as part of an effort to prevent capital flight (Koba). As a result, Switzerland passed a law that made revealing the identity of a client a criminal act. The effect of this event was the creation of one of the largest tax havens in the modern world. Thus, Swiss banks hosted about $ 2,100 billion, or 27% of the wealth of offshore companies in 2010, according to Boston Consulting Group (Ziare, 2012).
One mechanism used by the U.S. government that made possible the Swiss tax evasion breakthrough was the IRS’s “John Doe” summonses that “…cracked the back of Swiss secrecy laws and ultimately ended up in UBS turning over the names of about 4,500 holders of Swiss bank accounts to the IRS” (Brager). “John Doe” summons is a key tool IRS uses to fight tax evasion, especially after the 2008 UBS AG case. It is issued by IRS but must be approved by a federal district judge.