From tax secrecy to transparency
The Convention on Mutual Administrative Assistance in Tax Matters (MAC) has been developed by the European Council and the OECD in order to combat international tax evasion and tax fraud.
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This agreement serves as a starting point for multilateral tax cooperation and has been endorsed by the G20 and the OECD as a future standard for information exchange in Tax matters defined. The Mutual Assistance Convention provides the basis for three forms of information exchange:
- Exchange of information on request
- Automatic exchange of information (AEOI)
- Spontaneous exchange of information (SIA)
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The exchange of information upon request and the spontaneous exchange of information are mandatory for the signatory states. The Administrative Assistance Convention, on the other hand, does not contain any obligation to implement the AEOI. In this respect, this form of information exchange only takes place between member states that have agreed in a separate agreement to apply the AEOI. The competent authorities use the Multilateral Competent Authority Agreement (MCAA) as the basis for implementing the AEOI. The MCAA is based on Art. 6 of the Administrative Assistance Convention and was developed within the framework of the OECD as an important basis for the cross-border automatic exchange of information. In addition to multinational agreements, there is also a possibility to agree on AEOI via a bilateral treaty.
Switzerland signed the Administrative Assistance Convention in October 2013. Switzerland has concluded a so-called bilateral AEOI agreement with the EU, Australia, Canada, Japan, Norway, South Korea and other states.
Switzerland has been working on the implementation of the OECD standard into national law since 2013. In the process, various laws, ordinances and guidance documents have come into force since 2013. In view of the introduction of the OECD standard, the Federal Assembly adopted the MCAA and the Administrative Assistance Convention in December 2015, and in the process passed an amendment to the Tax Administrative Assistance Act (StAhiG). At the same time, in addition to the StAhiG, the Ordinance on International Administrative Assistance in Tax Matters (StAhiV) was also amended and put into force by the Federal Council on 1 January 2017. Furthermore, the AEOI Federal Act on the International Automatic Exchange of Information in Tax Matters together with the corresponding implementing provisions, the AEOI, were enacted by federal decree of December 2015. These conventions, laws and ordinances have also been in force since January 1, 2017. The first data exchange with partner states took place in 2018.
Exchange of information on request
Switzerland exchanges tax information at the request of foreign states on the basis of numerous double taxation agreements (DTAs). The DTAs not only prevent double taxation, but also regulate the exchange of information upon request. Such a process requires that the information is likely to be relevant for the enforcement of the domestic law of the requesting country. As a rule, only the requesting state can determine whether information is relevant. The international exchange of information upon request was already declared a global standard in 2012. This means that the exchange of tax information (e.g. financial data, rulings, etc.) on request is permitted in Switzerland. In March 2016, the Federal Administrative Court issued a ruling refusing Administrative Assistance with regard to a group request from the Dutch tax administration due to a lack of naming. However, the Federal Supreme Court subsequently allowed Administrative Assistance in tax matters to be sent to the Netherlands on the grounds that group requests without naming names are generally permitted under the DTA CH-NL, provided that the request for administrative assistance contains sufficient information to identify the person concerned. This shows that foreign tax authorities make use of the exchange of information on request.
Automatic exchange of information
The AEOI is also intended to create a uniform standard at the global level with regard to tax secrecy against tax evasion and thus promote tax honesty. In the process, information defined in advance is routinely transmitted to contracting states at certain intervals. This affects companies and private individuals. The scope of the international standard is limited to information on the identity of the person required to report (name, address, date and place of birth, tax identification number) as well as information on the corresponding account (account number, balance, interest, dividends and other income).
The implementation of the AEOI into Swiss domestic law stands for the end of bank secrecy for individuals resident in an AEOI signatory State, which have a bank account in Switzerland. However, banking secrecy still exists for Swiss residents subject to tax in Switzerland and with accounts in Switzerland.
Alongside the AEOI some statutes were enacted for the purpose of exchanging tax-related financial information. This includes for instance the EU Savings Tax Directive, the Foreign Account Tax Compliance Act (FATCA) and the Qualified Intermediary (QI) system with the USA.
Spontaneous exchange of information
With this form of information exchange, information is not transmitted on the basis of a prior request, but as soon as the informing state suspects a possible interest of another state. This should be the case, for example, in the event of suspected tax evasion or tax savings through artificial profit shifting within the group. Further cases in which information is to be spontaneously transmitted are listed in Art. 7 Para. 1 of the Administrative Assistance Convention. All information deemed relevant by the tax authority is exchanged. This also includes rulings if they contain regulations on the tax regime, transfer prices, permanent establishments or real estate in question. Accordingly, the transferor decides on the content to be transferred abroad. This type of exchange mainly affects internationally associated companies with locations in Switzerland, but also natural persons with cross-border situations. The legal basis for the spontaneous exchange of information has been in force since 1 January 2017. The exchange of data took place for the first time in 2018. The cantons have specified the implementation of these new provisions and determine in detail how the spontaneous exchange of information is applied. It is worth checking exactly what is exchanged, when and how between the states.
Conclusion
What has belonged to Switzerland for decades, like mountains and chocolate, namely the very great reluctance of the tax authorities towards foreign requests for information, is undergoing a reversal with the ratification of the Administrative Assistance Convention. In future, Switzerland will make tax data of internationally active corporations and individuals available to foreign tax authorities to a large extent.
Internationally active companies and private individuals with cross-border activities must be aware that tax and financial data will be exchanged with other countries in the future. To ensure that taxpayers do not suffer any disadvantages as a result of this new tax transparency, the companies and individuals concerned must prepare for this today and ensure that existing tax and financial relationships in Switzerland can be fully documented and substantiated.
