In an effort to curb tax evasion, in 2005 the European Union began requiring Swiss banks to withhold taxes in the amount of 15% on interest earned by EU households, but in many instances the initiative hasn't led to greater tax compliance or the repatriation of funds to the depositors' home countries, says Niels Johannesen of the University of Copenhagen. Instead, many depositors have simply adopted new tactics for avoiding taxation. Swiss bank deposits owned by EU residents declined by 30% to 40% relative to other Swiss bank deposits in the two quarters immediately before and after the tax was introduced, with much of the money going to accounts in offshore centers such as Panama and Macau, Johannesen says.
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