Switzerland and Russia: Financial Relations, Sanctions, and the Suspension of the Double Taxation Agreement

Switzerland’s financial relationship with Russia is multifaceted, encompassing various aspects from financial sanctions to investment activities. Recently, a new dimension has been added to this complex relationship with Russia’s decision to freeze the double taxation agreement with Switzerland. Let’s delve into the intricate dynamics that govern this relationship.

Switzerland’s Implementation of EU Financial Sanctions Against Russia

Switzerland prioritizes the integrity of its financial market, and thus fully implements EU sanctions in the financial sector. This includes all international banks, insurance companies, exchanges, and even commodity firms operating in Switzerland.

Timeline of Implementation

The Swiss government has shown the ability to act swiftly and efficiently. The enactment of the first package of measures on February 28, 2022, within four days of the EU’s decision demonstrates Switzerland’s commitment to international compliance.

Impact on the SWIFT System

The exclusion of some Russian banks from the international SWIFT system for exchanging payment instructions is supported by Switzerland. Despite one of the SWIFT data centers being located in Switzerland, the country has no direct influence over the exclusions.

Possible Collateral Damage

While the risk to the Swiss financial sector’s stability is considered low, the sanctions may affect Swiss companies reliant on smooth payment transactions with Russian customers or suppliers.

Involvement of Cryptoassets

Switzerland’s laws are technology-neutral, encompassing traditional securities as well as crypto-based assets. This includes the regulation of virtual currencies under money laundering legislation.

Russia’s Importance to Switzerland’s Financial Market

Although Russia is not among Switzerland’s primary financial partners, the total reserves and assets of the Central Bank of the Russian Federation in Switzerland amount to approximately 7.4 billion Swiss Francs.

Swiss Banks and Sanctions

Swiss banks, due to their integration with international capital markets, meticulously follow and implement international sanctions. The legal implementation in Switzerland further strengthens legal certainty.

Individual and Institutional Impact

Certain individuals and Russian banks in Switzerland listed on the EU sanctions list are affected, but exact details about accounts held by these entities in Swiss banks are not centrally available.

Russia’s Suspension of Double Taxation Agreement with Switzerland

In August 2023, it was announced that Russia intends to freeze double taxation agreements with several states, including Switzerland. The Swiss State Secretariat for International Financial Matters (SIF) has acknowledged Moscow’s decision, although formal communication via diplomatic channels has not yet occurred.

Motivation Behind the Suspension

Russia has explained the suspension as a step against “unfriendly states” that allegedly violate Russia’s legitimate economic and other interests. The Kremlin has branded 50 countries as “unfriendly,” including Switzerland, the EU, the USA, and Australia.

Consequences of the Suspension

Should the agreement actually fall, dividends, interest, and corporate profits could be taxed in both Russia and Switzerland, resulting in potentially significant costs for affected individuals and businesses. The double taxation agreement, dated November 15, 1995, was precisely aimed at preventing this.

Interestingly, the suspension appears to primarily penalize Russian citizens and companies in Switzerland. Swiss activities in Russia have been significantly reduced over the past one and a half years.

Conclusion: A Careful Balance

Switzerland has struck a careful balance in its approach to financial relations with Russia, aiming to maintain both the integrity of its financial system and its international obligations. The country’s adherence to EU sanctions, coupled with a thoughtful consideration of potential impacts on its own businesses and financial sector, exemplifies this nuanced approach.

By openly discussing and transparently implementing financial sanctions, Switzerland reinforces its position as a reliable partner in the international community while preserving its core values in the financial sphere.

Sources: admin.ch & srf.tv