An end to Swiss tax barriers means more work for lawyers, although the expected M&A pick-up has yet to materialise.
Just over a month ago the UK Government announced – with some glee – that it had initialled an agreement with Switzerland to “tackle offshore tax evasion”. The treaty, which is yet to be ratified and is not expected to come into force until 2013, follows a similar agreement with Germany. As a result of the agreement the UK and Germany hope to recoup millions of pounds of unpaid tax from their residents who hold money in Swiss bank accounts.
The precise effect of the treaties on the Swiss banking industry are, at present, far from clear, but the effect on the legal market in Switzerland is already being felt. Like many other areas that have a negative impact on some, the treaties look set to provide lawyers with work for at least the next year.
“We’re already getting instructions from banks and trusts that want to understand how it’ll work so they can give advice to clients,” confirms Philippe Pulfer, a private client partner in Froriep Renggli’s Geneva office.
The lack of confirmation of the UK treaty’s wording is limiting the advice that can be given for the moment, although both Withers and Collyer Bristow in Switzerland report instructions from institutions trying to make sense of what it could mean for them and their clients from an English law perspective. Withers’ Swiss head Justine Markovitz says the interpretation of terms could be one of the toughest questions.
For the time being work on the treaties is likely to be mainly advisory, although it could well lead to litigation if those holding money in Switzerland decide to challenge the release of their account details by their banks to foreign governments. Lawyers have already been providing advice for US clients for a while, following the intense investigation by the US Inland Revenue Service into accounts at Swiss bank UBS.
The treaties are likely to be followed by more agreements with other countries. Lalive partner Alexander Troller says the continuing economic turmoil around Europe could well accelerate this process.
“We’re all ready to take on the work for British and German clients plus clients from other countries with which Switzerland will enter into similar tax agreements,” Troller says. “These countries are in need of cash – their coffers are empty and they’ll raise tax locally, but they’ll also be realistic.”
Schellenberg Wittmer managing partner Vincent Jeanneret suggests that clients may turn towards trust structures.
“We believe it’s quite good for the top end of the market,” he says. “In the long run it may have an impact if the Swiss banks are no longer as powerful as they used to be.”
The advent of the agreements and the prospect of more is causing some firms in Switzerland to beef up their tax teams, continuing a process that has been going on for a while. A year ago Bär & Karrer hired three partners specialising in tax. Now other firms, such as corporate boutique Tavernier Tschanz, are also looking at their ability to advise clients on taxation issues.
Indeed, private client work generally for lawyers in Switzerland is buoyant at the moment. The continuing steady flow of well-qualified and well-paid foreigners to the country to work for corporations means even those firms that previously did not give much private client advice are spotting a gap in their offering. As Niederer Kraft & Frey partner Philippe Weber points out, giving an entrepreneur private client advice could well lead, in time, to a juicy corporate instruction.
Those big corporate deals are a bit thinner on the ground than they used to be. In The Lawyer’s last Special Report on Switzerland in April lawyers were predicting a pick-up in M&A work, which has not yet materialised to the extent they had hoped.
Homburger managing partner Heinz Schärer says most, although not all, IPOs in Switzerland are “on the back burner”.
“It’s the same with M&A – a lot of transactions are on the back burner – moving slowly or put on hold,” says Schärer.
Weber agrees that equity capital markets work is sluggish, but thinks debt capital markets work is busier, although standard day-to-day debt capital markets deals are done in-house.
“There are some more sophisticated transactions going on, for instance, related to increased capital requirements for banks and insurance companies,” he says.
Lawyers admit that levels of activity are, to a certain extent, down to luck. If a firm happens to have a client that is doing a deal it is better off than those whose clients are less active.
“During the crisis the high-profile clients turned to tier one firms,” Weber says. “It’s difficult to get on these tier one deals. Clients don’t want to make a mistake and if you don’t have a record it gets even more difficult to get on these deals.”
Bär & Karrer managing partner Eric Stupp agrees that in-house teams in Switzerland are doing more work themselves than previously, and thinks this could affect smaller firms if things remain slow.
“The groundwork is now kept in-house and it’s the higher end of work you go outside for,” Stupp says. “If we have a downturn we’ll see what we’ve seen in the past, which makes it more difficult for the smaller firms.”
As in other countries, turbulence in the financial markets means law firms are having to diversify their practices to ensure survival. Schärer points out that Swiss lawyers tend to be educated in a broader fashion than their Anglo-Saxon counterparts, making it easier to shift lawyers between departments to account for activity levels.
One such shift Homburger has made is to increase the numbers of lawyers carrying out regulatory work as this aspect of things becomes more important. Others agree that investigative advice is a growing part of the profile, especially for financial institutions.
Litigation in focus
Another trend is the increase in litigation. Several firms, such as Vischer in Basel and Zurich and Schellenberg Wittmer in Zurich and Geneva, have focused their hiring efforts on their contentious teams in recent months in response to this. The January unification of civil procedure rules has also helped, enabling larger firms to spread their litigation capabilities out of the cities in which they are based, although the real impact of this change is yet to be felt as lawyers grow used to the changed regime.
Financial services litigation is perhaps the fastest-growing sector, with the fallout from the financial crisis resulting in actual cases. Homburger litigation head Felix Dasser notes that litigation tends to last for several years, pointing out that the firm is still “cleaning up” the last of the cases emanating from the bursting of the dotcom bubble.
“That’s the good thing about our team – it levels out the ups and down in other teams that might be more exposed to the markets on a short-term basis,” Dasser adds.
At Lalive Troller is confident the firm’s focus on contentious work will allow it to pick up work that many of the big firms would have to turn down for conflict reasons.
“In contrast with the biggest law firms in Switzerland we do litigate against banks,” he says. “We have certain banks that are clients of the firm but we have more matters against banks than for them.”
Troller describes an evolution in the attitude of the courts towards financial services litigation. Whereas previously Swiss courts were seen as relatively bank-friendly, Troller says they are now more likely to rule on the side of clients who were perhaps badly advised.
International arbitration remains a strong area for firms in Switzerland. Swiss firms dominate the market, although UK and US firms do have a local presence in this area. Just last week (3 October) Holman Fenwick Willan hired Akin Gump counsel Matthew Parish to grow its arbitration offering in Geneva, while Eversheds’ international arbitration head is based in Zurich.
Vischer deputy managing partner Christoph Pestalozzi, who practises as an arbitrator, believes arbitration is one of Switzerland’s greatest exports.
“We have watches, we have chocolate and we have arbitration,” he says. “We have a great advantage in that everybody thinks Switzerland is still a neutral country. There’s a young generation coming up that’s really well trained in international arbitration.”
Although Geneva is traditionally seen as the centre for arbitration, Zurich-based arbitrators are keen to stress that the city has a thriving commercial arbitration business. Lalive opened in Zurich a couple of years ago and although the firm’s Geneva office is larger and thriving, Troller admits he does not know how it coped without being in Zurich for so long.
Lawyers in both cities feel that Switzerland’s strength in arbitration will continue, helped by its international profile in the sector thanks to Geneva being the seat for several centres of arbitration, including sport and trade.
And although there are undoubtedly going to be changes to the banking sector, in particular as a result of the tax treaties and regulation such as Basel III, the predominant feeling is that Switzerland will remain attractive to those wanting a safe place for their money.
“Going forward, the reason for having money in Switzerland won’t be because of banking secrecy, it will be because of the service,” notes Withers’ Markovitz. “There may be a dip in assets under management, but assets will continue to grow because of the strength of the offering here.”