Tax Avoidance, Collective Resistance, and International Negotiations: Foreign Tax Refusal by Swiss Banks and Industries Between the Two World Wars

From legal avoidance to tax strikes, and from outright fraud to tax revolt, taxes have long inspired numerous forms of individual and collective resistance. In fact, systems of taxation have always represented an area of contention between market economies and states, whereas the distribution of the tax burden has often ignited intense social conflicts. ¹

Considering the near ubiquity of tax resistance, it is paradoxical that so few historical studies have examined the tax-refusal practices used by multinational firms that represent the driving force behind the current globalization of finance. Although business leaders’ influence on the tax legislation development during the twentieth century has been well documented, ² the most cited tax resistance strategies typically amount to a list of legal and illegal techniques for optimizing taxation. Studies of tax havens are replete with descriptions of tax-avoidance schemes whose sophistication is matched only by governments’ powerlessness to counter them. ³ In effect, the literature gives the impression that, unlike wage-earners and the middle class, international investors have never needed to engage in collective, overt approaches to counteract taxation. ⁴

This article questions this assertion by analyzing the responses of Swiss business leaders to the rise of modern systems of direct taxation after World War I. During this period, according to Gabriel Ardant, a pioneer of financial sociology, the levying of direct taxes on capital and profits faced powerful “reactions against egalitarian taxation” that arose throughout Europe. ⁵ Encouraged by elites’ prevailing resistance to taxation, tax-dodging became the norm. The scarce statistical data available suggest widespread tax avoidance and evasion during the interwar period. Belgian authorities, for example, estimated that two-thirds of the incomes from movable capital eluded fraudulently the progressive income tax between 1919 and 1924, ⁶ while, according to the French tax administration, this proportion varied from around 40 percent to 70 percent in France during the interwar years. ⁷ Although theoretical rates of direct taxation in the 1920s and 1930s were significantly higher than before World War I, it was through tax practices that the very rich were partly able to preserve their wealth and profit margins.

Even though tax historians have long acknowledged the enormous extent of interwar tax resistance, ⁸ the actual mechanisms of capital tax refusal are still poorly understood. This article tries to address this gap by exposing the diversity of strategies of resistance used by Swiss banks and industries to the taxation of wealth and profits. These strategies extended beyond traditional methods of hiding taxable assets in three major ways. First, at the end of the war, Swiss business leaders colluded in their response to European countries’ new systems of deductions on foreign investment. The umbrella organizations of Swiss banks and industries, which were particularly powerful compared to other countries, ⁹ coordinated their members’ actions against taxation. The creation of country-specific committees to defend foreign investments and the establishment of self-regulatory practices enabled them to arbitrate between opportunities for collective protest against foreign taxes and alternatives for tax evasion or avoidance. This explicit interweaving of grouped challenges to taxes and individual tax fraud, within a shared nexus of fiscal resistance that involved industrial and financial firms, sheds new light on international fiscal competition practices.

Second, the peculiar feature of international taxation enabled these business leaders to rely on the assistance of Swiss federal administration. In fact, the government placed its bureaucratic and consular networks at the service of banking and industrial interests, a “commercialization of the state” that is typical of tax havens ¹⁰ but which, in the case of Switzerland, includes the remarkable characteristic of protecting the expatriation of assets while also creating legal systems that favor the importation of capital. During the interwar period, Switzerland became the destination of choice for European capital seeking to evade taxation, much of which was subsequently re-exported toward external markets. ¹¹ Through initiatives against foreign taxation that benefited Swiss-held exported capital, the administration’s efforts were meant to ensure that Switzerland remained an attractive financial center by...