In parliament this week, Britain's prime minister, Gordon Brown raised the issue of Switzerland and its financial institutions and the perceived opinion that they are collecting billions of dollars a year out of the pockets of others through legalised tax avoidance. It was largely seen as an attempt by Mr Brown to assure critics that he was doing something positive against tax avoidance.

In Switzerland, legal tax avoidance is not a crime and is regularly assisted by the banks in addition to the deliberate concealment of wealth for the purpose of evading tax - regarded as a crime in the rest of the developed world. So far, attempts by countries to stop this tax avoidance have been boycotted by the Swiss prompting the German finance minister to ask that Switzerland officially be named and shamed as an unco-operative tax haven.

In an interview with a British newspaper, Konrad Hummler, president of the Swiss private bankers' association admitted that "The large majority of foreign investors with money placed in Switzerland evade taxes. I admit it is undemocratic, but I have a feeling that the democratic system went way beyond their legitimate role against the taxpayer. What these states do may be legal, but it is not legitimate."

He described Germany, France and Italy as "illegitimate states", whose citizens had no protection from excessive taxes. He viewed the Organisation for Economic Co-operation and Development [OECD], which has fought tax havens, as a "tax cartel". He said the Swiss would not willingly compromise banking secrecy or their view that tax evasion was no crime and thought that if Switzerland relented; the money would simply be moved elsewhere.

It is very lucrative for the Swiss banks as they routinely charge fees of 10%, while the regional cantons earn millions by levying only small amounts of tax on foreign individuals and companies who would pay considerably more in their own countries.

According to the official agency, Location Switzerland, there are about 6,000 global companies in Switzerland and around 180 of theses are UK businesses. The bonus of setting up in Switzerland is that these companies will pay much lower taxes than in the UK.

Local cantons also often offer tax breaks to wealthy foreign individuals. One such tax break allows foreigners to live in the canton but not pay any income tax. In return they are asked for a canton fee, often five times the rental value of their Swiss home. There are so many living in villas along the eastern shore of Lake Zurich that it is known as the "Gold Coast".

Two crucial differences exist between the Swiss and other governments that permit Switzerland's lucrative tax haven industry to continue:

• Leaking confidential information is seen as a dismissible offence in most countries. However, the Swiss charge offenders under article 47 of their criminal code and if found guilty they will usually receive custodial sentences. These tough sentences help the Swiss control potential leaks.
• Additionally, in contrast to all other developed countries, tax evasion in Switzerland is not seen as a crime unless it involves active fraud, such as the forgery of paperwork.

A former UBS employee, Bradley Birkenfeld, who was arrested in the US, pleaded guilty to organising tax fraud and agreed to tell all. Among his allegations were claims that UBS staff

• Regularly touted for business among wealthy Americans.
• Helped thousands of clients to dodge new by shifting their money into offshore companies.
• Advised clients to destroy evidence of their accounts and offered to store their banking correspondence in Zurich.
• Helped approximately 19,000 US taxpayers to shelter $18bn,
• Encouraged clients to buy jewellery or art that they could bring back into the US.

These claims have increased the pressure on UBS to co-operate and disclose details of the 19,000 accounts. Initially, the Swiss resisted and despite belonging to the OECD refused to sign any tax information exchange agreement. They have refused also to sign up to the EU savings directive, which asks for the individual account details of all European residents to be passed to their respective tax authorities.

The prospect of UBS possibly losing its licence to operate in the US caused a re-think and UBS were willing to co-operate but the Swiss finance ministry intervened to ensure that if files were handed over, it would be on the fictional basis that it was evidence of fraud.

While Gordon Brown hopes that the Swiss might reform in the wake of this latest UBS scandal, it hasn't happened yet. For the moment, Switzerland still sells itself as a place to set up business if you really want to save tax.