Switzerland: Tax Briefing – Switzerland Takes Next Steps Towards Automatic Exchange Of Information In Tax Matters (AIA)

1. Introduction

On 14 January 2015, the Swiss Federal Council opened consultations on two draft laws on the international exchange of information in tax matters. One of them deals with the OECD/Council of Europe administrative assistance convention signed by Switzerland on 15 October 2013. The other consultation deals with Switzerland’s participation in the Multilateral Competent Authority Agreement as well as the AEOI implementing Act.

Both proposals have been drafted by the Swiss Federal Council and are now being sent through the consultation procedure.

2. Today’s situation

2.1. International Standard regarding Exchange of Information in Tax Matters

As part of its strategy for a competitive Swiss financial center, Switzerland professed to follow the international standards regarding the exchange of information in tax matters (OECD standard) in 2009, i.e. to provide information upon request of foreign tax authorities. Since then, this standard has been implemented in a large number of double taxation agreements as well as in tax information exchange agreements.

2.2. OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters

The OECD/Council of Europe Convention on Mutual Administrative Assistance (administrative assistance convention) has gained more and more importance over the last years due to the great support of all of the G20 nations and almost every OECD member state fighting against tax evasion and avoidance. As a result, the Convention is now considered to be part of the international standard and Switzerland’s accession to the Convention has become inevitable. To fulfil this (political) obligation, the Swiss Federal Council has, as a first step, signed the Convention on 15 October 2013.

3. Accessing the Administrative Assistance Convention – What is new?

By accessing the administrative assistance convention, Switzerland would face several (new) forms of administrative assistance, the most significant one being the information exchange, namely the information exchange upon request, the spontaneous as well as the automatic information exchange.

With regard to the information exchange upon request, which corresponds to the OECD standard already adopted in 2009, Switzerland would now have an increased number of partner countries with which it could exchange information upon request without having to agree to it in any double taxation or tax information exchange agreements.

With regard to the spontaneous information exchange, the Swiss tax authorities would transmit information that is presumably relevant to the other state and that has not been previously requested.

The administrative assistance convention also contains a legal basis for the introduction of the automatic information exchange between the member states’ tax authorities.

Another form of administrative assistance stipulated in the Convention relates to assistance for the service of documents, i.e. the direct service of documents sent by foreign authorities to persons with residence in Switzerland as well as the direct service of documents sent by Swiss authorities to persons residing abroad.

In the context of this consultation, the Swiss Federal Council is also proposing the two following declarations to be made when finally accessing the convention: Firstly, Switzerland will inform the people affected about the forthcoming information exchange. Secondly, Switzerland would not allow foreign tax authorities to execute tax audits in Switzerland.

4. Automatic Information Exchange – Legal Basis, MCAA and AEOI Implementing Act

As mentioned in paragraph 3, the administrative assistance convention also contains a legal basis for the introduction of the automatic information exchange in Art. 6. This provision states that the convention’s member states can conclude an automatic information exchange in a separate agreement, which has to be approved by the Swiss Parliament.

On 19 November 2014, the Swiss Federal Council signed the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (MCAA), which stipulates the exchange of information collected in accordance with OECD’s provisions of the automatic exchange of information standard, and is now also being submitted for consultation.

According to the MCAA, Swiss financial intermediaries are obliged to inform the Swiss tax authorities of any data regarding financial accounts of persons subject to taxation in another member state, i.e. personal details (name, address, date of birth), information with regard to financial assets (account number, credit balance on his or her account, interests on instalments, dividends, sum of revenues arising out of the sale of financial assets, income from insurance contracts). Subsequently, the Swiss tax authorities will then periodically have to transmit the data collected to the foreign tax authorities.

Since not all of MCAA’s provisions are sufficiently detailed, justiciable and will therefore be directly applicable, an enactment of a new federal law is necessary, which will implement the provisions concerned into Swiss law. The Swiss Federal Council therefore drafted the Federal Act on the International Automatic Exchange of Information in Tax Matters (AEOI Act), which is also being sent through the consultation procedure.

5. Further steps

As both consultations will run until 21 April 2015, the Swiss Federal Council’s dispatches for the attention of Parliament are expected in summer 2015. The Parliament would then have the opportunity to discuss the draft laws for autumn 2015. As a result, the administrative assisting convention as well as the MCAA and the AEOI Act could enter into force from the beginning of 2017 or – in the absence of a referendum – even earlier. As a result, the first automatic exchange of information would then take place in 2018.

6. Recommendations

The two bills initiated by the Swiss Federal Council, once approved and enacted by the Swiss Parliament, will be of great importance for private persons with residence not only in Switzerland but also abroad as well as financial intermediaries.

Firstly, with the implementation of the automatic exchange of financial account information the Swiss banking secrecy does not longer apply in cross border situations. Hence, there is an urgent need for a proper international tax planning.

Secondly, persons with residence in Switzerland must be aware that the information exchange is reciprocal. Hence, information received from abroad may be used by the Swiss tax authorities for tax assessments and enforcement of Swiss tax law. Accordingly, persons with undisclosed assets and accounts are highly recommended making use of a voluntary disclosure. FRORIEP has long standing and wide practical experience in dealing with voluntary disclosures.