Tax evasion or penalty-free subsequent declaration?

1. Defective tax declaration

As long as no obvious discrepancies are apparent to the tax authorities in the assessment procedure, they will not make any further enquiries or demands for identification and will make the tax assessment in accordance with the tax return.

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In such a process, undiscovered omissions can occur. This can concern a forgotten rent deposit account, the Goldvreneli inherited years ago or, as a more recent example, tokens of cryptocurrencies. The following blog article shows the tax consequences of such a declaration error:

2. Consequences

If the taxpayer only discovers such omissions after the definitive assessment by the tax authority, he or she has the instrument of a subsequent declaration. A subsequent declaration inevitably leads to the tax authority reopening the tax assessments of the previous years and checking whether and by how much tax was underpaid. A subsequent declaration can be made at any time. Typically, a subsequent declaration takes the form of a simple letter to the tax authority describing the omission and the circumstances of the taxpayer, together with the necessary enclosures.

In principle, the subsequent declaration also results in a fine, since the taxpayer has paid too little tax by filing the defective tax return and has thus committed tax evasion.

2.1 Supplementary tax

A supplementary tax is payable if, due to new facts or evidence which the tax authorities were not aware of, an assessment was wrongly omitted or a legally binding assessment is incomplete. The taxes that have not been collected will be claimed by the tax authorities together with late payment from the date of the underpaid tax invoices concerned. The interest rate is currently 3% per year for direct federal tax. With regard to state and municipal taxes, it can vary from 2.5% in Ticino to 8% in Neuchâtel (2021), depending on the Canton. It is irrelevant whether the taxpayer is at fault. It should be noted, however, that due to the time limitation period, only the last 10 years from the date of the supplementary tax declaration are taken into account. All previous periods cannot be retaxed by the tax authorities.

2.2 Fines

Principle

If, due to an inadequate tax return, too little tax was paid in the past, the taxpayer in most cases also commits the offence of completed tax evasion, which is punishable by a fine.

Anyone who commits completed tax evasion is punished with a fine equal to the amount of tax evaded. Depending on the severity of the culpability, the fine may be reduced to one third of the evaded tax amount or increased by three times.

Special case: self-denunciation, not subject to punishment

Taxpayers have the option of reporting themselves without penalty once in their lifetime for completed tax evasion, i.e. after the final (incomplete) tax assessment has become final. As long as the incomplete tax assessment was not known to the tax authority at the time of the voluntary declaration and the taxpayer supports the tax authority unconditionally in the assessment of the subsequent tax, the tax authority must recognise this as an unpunished declaration error and waive the fine. The tax authority will only claim the outstanding back tax including interest. In this case, it is advisable to call the subsequent declaration a first-time voluntary disclosure. A repeated self-declaration in turn has a penalty-reducing effect in that the fine is reduced to one fifth of the evaded tax.

A first-time self-denunciation is forwarded by default by the cantonal tax authority to the Federal Tax Administration for registration throughout Switzerland. This ensures that a taxpayer cannot benefit again from a non-punishable self-denunciation after a change of residence to another Canton.

In the case of a subsequent declaration, the competent cantonal tax authority checks as standard whether the subsequently declared assets or income values actually give rise to supplementary taxes. If this is not the case, e.g. because a possible exemption amount for wealth taxes has not yet been exceeded and no income has been received in connection with the assets, neither an additional tax nor a fine is due. The subsequent declaration is therefore not treated as a non-punishable self-denunciation and is therefore not reported to the Federal Tax Administration.

This also applies if the evaded amount of the tax debt is only a few francs. However, the threshold values applied by the tax authorities in this regard vary from Canton to Canton.

3. Conclusion

As long as no taxes were actually evaded due to a missed declaration of an asset or the amount of the evaded taxes is less than a few francs, a subsequent declaration does not have to be made within the scope of a written self-denunciation. In such constellations, it is rather advisable to make a corresponding note in the next tax return under the heading remarks that the asset in question is being subsequently declared, but already existed in previous periods. In this way, the taxpayer does not forfeit his or her right to a future self-denunciation, not subject to punishment.