Updated 19:40 Bern, Switzerland (GenevaLunch) – The Swiss government Friday noon announced that it will adopt the OECD standard on administrative assistance in tax matters, which is part of the OECD’s Model Tax Convention. As a result Switzerland will exchange information with other governments in individual cases where “a specific and justified request has been made” for any form of tax offense. Accepting the standard will require renegotiating existing bilateral treaties. Requests from other governments, made according to the standard, will be honoured once new treaties go into effect.
Ed. note: it was widely reported Friday that Switzerland has agreed to assist other governments in cases of tax evasion, not just fraud. While this may be the result of the 13 March announcement, Switzerland specifically states that it intends to adopt the convention “in accordance with Art. 26 of the OECD Model Tax Convention.”
Article 26 does not mandate rules on assisting in cases of tax evasion, but rather leaves states free to negotiate the details of their bilateral agreements. It suggests that they might, for example, want to share information about tax evasion schemes rather than individual taxpayers. Details: OECD Model Tax Convention, download the browsable condensed version of the pdf: contents/Article 26.
Swiss President Hans-Rudolph Merz, who made the announcement, was firm that Switzerland will retain banking secrecy, noting in particular that Switzerland will insist that established administrative assistance procedures are respected and it will strictly limit such administrative assistance to individual cases, with no fishing expeditions allowed.
The IRS (Internal Revenue Service) has come in for widespread and heavy criticism in Switzerland for its request for information on more than 50,000 bank accounts, viewed as a fishing expedition that does not respect privacy.
Merz’s remarks reflect what the government believes to be a strongly held value in Switzerland to protect privacy, including private data and private relations between banks and their clients. “The Federal Council acknowledges that the wish of the people of Switzerland for appropriate protection of personal privacy is still firmly entrenched. For this reason, it fully endorses banking secrecy and resolutely rejects any form of automatic exchange of information. The privacy of customers will continue to be protected from unauthorised access to information concerning private assets.”
The change will have no impact on taxpayers who are resident in Switzerland. The right of the Swiss tax authorities to access bank data under Swiss domestic law is not affected by the decision: the government may not have access to Swiss taxpayers’ bank accounts unless clear evidence of likely tax fraud is shown.
The government says it expects to see an improvement in administrative exchanges with the United States thanks in part to a working party of experts, but it was firm in its insistence that “transitional solutions” must be fair, that the principle of “subsidiarity” must be respected and that discrimination must be eliminated. These are references to the recent handling by the US Justice Department and the IRS of requests for information from UBS, where the American tax authorities were perceived to ride roughshod over Swiss laws despite these being covered in existing bilateral agreements.
The Federal Council (cabinet) will in future “endeavour to ensure that international cooperation in tax matters is carried out exclusively within the framework of contractually agreed channels,” the government notes in its press release following the press release. Pressure from the US on UBS to turn over clients’ records for 252 accounts by a US-set deadline prompted the bank to do so, bypassing Swiss legal procedure. In the end the Swiss court within days agreed that the US request was valid.
Switzerland also said Friday noon that it will be asking an American lawyer to draft an “amicus curiae” for the civil action against UBS in the US to further insist that the US respect Swiss sovereignty. It explains: “‘Amicus curiae‘ is the name given to a person or organzsation that participates in a court action but is not a party to the action. This participation can take the form, for example, of a ‘third-party statement’ in a case between two parties. An amicus curiae can provide the court with detailed information or expertise. Although it is not necessary for the amicus curiae to be completely independent, the amicus curiae must not be party to the court action. An amicus curiae is frequently someone whose interests could be indirectly affected by the legal dispute or the court’s decision.”