Unlicensed Downloading Not a Problem in Switzerland

Unlicensed downloading is just as widespread in Switzerland as it is in most well connected and wealthy countries. Being outside of the European Union however allows the Swiss Government to take its own legal and regulatory path. And the Federal Council has just concluded that filesharing and unlicensed downloading are not a problem.

Here’s a translation of part of their statement on the subject:

The share of disposable income spent by consumers and consumers in this area remains stable. However, there transfers within the budget. Thus, users of sharing sites continue to spend the savings they make by downloading free Internet content on entertainment, but instead of buying CDs and DVDs, they choose concert tickets, films, and merchandising.

It is mainly large foreign production companies which suffer from these new patterns of consumption and they must adapt. As shown in the entertainment budget transfers outlined in the report, fears that these changes have a negative impact on Swiss cultural creativity are unfounded. The Federal Council therefore reaches the conclusion that there is no need to take legislative action.

In other words a simple nationalistic test is all that is necessary. The Swiss have I suspect a negative balance of payments in music and film, and therefore perhaps are less susceptible to arguments that jobs and taxes are dependent on strong withholding rights.

With music licensing increasingly a global business it will be interesting to see if the less protectionist approach the Swiss have adopted keeps out the rights licensing businesses that otherwise might have benefited from the sophisticated financial services infrastructure, low tax, and stability the country offers. Some of the well established performers already live there, ironically benefiting from low taxes on royalties earned in less permissive music markets. A less obvious tax haven for artists is Ireland, which offers an exemption for the first €40,000 in earnings. That of course was not nearly enough to keep Ireland’s biggest music exporter from becoming it’s biggest permanent export when U2 moved their business out in 2006.

The impact of tax rates on royalty flows is dramatic. The Netherlands, despite its unimpressive representation in the creation of music copyrights is nevertheless one of the world centres for licensing due to its zero rate withholding tax on royalty income. If you are shopping for a friendly regime, Deloitte’s provides a handy list and can no doubt advise which presents the best all round value for your particular circumstances. Malta has recently got into the game too with a 0% rate on music.

Is there any kind of lesson here? Switzerland can hardly be held up as a model of progressive liberalism, and indeed its own rationale is a kind of ‘I’m all right Jacques’ two fingers to Hollywood. Tax arbitrage will ensure that no matter how transparent collecting societies are some royalty flows will always be invisible to regulators. Meanwhile national ‘cultural creativity’ seems to march on regardless – there were at least three accordionists in the train station at Swiss watch town Biel when I visited last summer, and all seemed to be collecting enough Francs for a kebab while playing in front of posters for Alpine Opera (a startled marmoset staring at a soprano) and a Peugeot with Lady GaGa bundled from Universal Music.

So no, free downloading makes very little difference to the Swiss, beyond marginally shrinking the number of recording artists who might eventually be looking for a friendly place to domicile their wealth. But for the rest of us the Swiss opinion on downloading is equally irrelevant.

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