Update 2 23:30 Bern, Switzerland (GenevaLunch) - Switzerland and the US late Wednesday Swiss time signed, thereby bringing into effect immediately a revised double taxation agreement, known officially as the Protocol of Amendment. The two have had a double taxation agreement since 1996, but the revised Protocol brings Switzerland into line with OECD standards in terms of providing assistance to the US in the case of suspected fiscal fraud and tax evasion. The agreement states that when a country asks for help with suspected tax evaders it must provide “information sufficient to identify the person under examination or investigation (typically, name and, to the extent known, address, account number or similar identifying information”, the period of time for which the information is requested and the tax purpose for which the information is sought. Fishing expeditions – requests for assistance without supplying these details – are specifically forbidden.
The terms of the agreement are not retroactive and most go into effect immediately, although some terms are valid as of 1 January 2010.
Switzerland by Thursday 24 September will have signed 10 new agreements, a, just in time for a meeting of the G20 countries 24-25 September in Pittsburgh, Pennsylvania in the US, and it is expected to be removed from the OECD’s unofficial gray list of tax shelters Friday.
Additional highlights of the new Protocol include:
Administrative assistance extended, some pension plan income exemptions added
The new agreement between the two countries focuses primarily on extending administrative assistance to cases that in the past were not covered because Switzerland does not consider tax evasion a criminal offense, but rather a civil offense, while the US considers both fraud and evasion to be criminal offenses. The negotiations for the Protocol gave the governments the opportunity, Bern states, to “exempt dividends from taxation paid out by restricted pension organizations (in Switzerland: pillar 3A) in the source country.” Until now, payouts from a private pension fund have been taxable. In future this income will be exempt.
Right of appeal before information is provided
A detail that is particularly relevant this week is the protection of individuals’ right of appeal: “the administrative procedural rules regarding a taxpayer’s rights (such as the right to be notified or the right to appeal) provided for in the requested State remain applicable before the information is exchanged with the requesting State.” An administrative court judge in Ticino Monday 21 September issued a temporary restraining order in the case of two UBS clients in Lugano, ruling that clients of the bank must be informed before their names are turned over to the IRS, and they must be allowed the right to appeal. The IRS is expected to ask for information on the accounts of some 4,500 clients of the bank within a year, part of the negotiations in which the two countries have been involved in recent months. UBS issued a statement today saying that it plans to comply with the judge’s order, “UBS will notify clients who the bank concludes will be affected by administrative assistance,” it noted.
Arbitration as long as taxes have been filed in at least one of the countries
In cases where the two governments cannot agree on the need for administrative assistance to be provided, the cases will go to arbitration, as laid out by the agreement – as long as the person in question has filed taxes for the period being investigated, in at least one of the countries.
Negotiations to continue for another two years
The agreement also explicity states that negotiations will continue during the next two years on a number of issues, one of which is reducing to zero the withholding tax on “certain equity dividends.”
Related: Le Temps and TSR, Fre; Yahoo news
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