What sort of offer has Switzerland made?
What is
the content of the OECD model agreement, specifically Art. 26?
What will happen to Swiss
bank-client confidentiality if Switzerland accepts Art. 26 of the OECD's model agreement?
Does
Article 26 mean that tax authorities can now make automatic account inquiries or conduct investigations
at random?
What are the specific requirements for administrative assistance?
What
are the Swiss Bankers Association's conditions for future negotiations?
Are Swiss clients
affected by this arrangement?
Why are foreign clients being treated differently from
Swiss clients?
Will Switzerland lose market share as the largest provider of offshore
banking services?
Why is Switzerland the only country that has to do this? What about
other countries with bank-client confidentiality?
Why has Switzerland succumbed to international
pressure so quickly?
What steps has the Swiss Bankers Association taken?
What
happens next?
The SBA's press release on
the decisions
relating to administrative
assistance in tax matters is available from  www.swissbanking.org
What
sort of offer has Switzerland made?
The Swiss government
is to take over the OECD standard on administrative assistance in tax matters according to Article 26
of the OECD's Model Tax Convention and use it as the basis for revising double taxation agreements.
More details can be found in the Swiss government's press release available on
www.efd.admin.ch.
 Top
What
is the content of the OECD model agreement, specifically Art. 26?
The
OECD provides a model double taxation agreement (for cross-border tax issues) for its 30 member states.
This agreement represents neither applicable law nor valid legislation. Rather,
it is merely a model text that can be used as a basis for state treaties as negotiated
and signed by the relevant countries.
Comprising
31 articles, the model agreement regulates various taxation issues relating to a number of topics. Article
26 provides a definitive ruling on information exchange, i.e. administrative assistance among tax authorities
of the signatory countries. OECD members Belgium, Luxembourg, Austria and Switzerland have voiced their
reservations about the content of Art. 26. Specifically, Switzerland has not yet fully recognized this
article, as it has only been willing to guarantee administrative assistance among tax authorities in
cases of tax fraud and the like, but not in cases of tax evasion.
States
that have implemented Art. 26 in its standard form agree to the exchange of information upon request,
but not to the automatic disclosure of information. This means that the country seeking information
must produce a substantiated request, naming the taxable person and the specific bank or describing
them in sufficient detail.
Top
What
will
happen to Swiss bank-client confidentiality if Switzerland accepts Art. 26 of the OECD's model agreement?
Bank-client
confidentiality, as set down in Art. 47 of the Swiss Banking Act of 1934, guarantees a confidential
relationship between client and bank. Nothing about this will change. The Swiss government has made
it clear that there will be no so-called "fishing expeditions". Bank-client confidentiality
and protection
of privacy for domestic and international clients is an important feature and will remain intact.
Article
26 of the OECD Model Agreement deals with bank-client confidentiality in taxation matters, which to
date has meant that Switzerland has not handed over bank documents with regard to tax evasion, but has
done so for tax fraud offences.
Moreover, Art.
26 is not directly applicable on its own, i.e. it must first
be made part of international agreements between Switzerland and other countries. In other words, Switzerland
must first negotiate with its double taxation agreement partners on the respective agreements. Finally,
the amended double taxation agreement must come into force for the contents of Art. 26 to be applicable,
thus permitting requests for information. Conditions regarding administrative assistance will be negotiable
for each double taxation agreement.
Top
Does
Article 26 mean that tax authorities can now make automatic account inquiries or conduct investigations
at random?
No. Only the provisions of the relevant double
taxation agreement are authoritative. Information will only be provided by the tax authority of one
country upon receipt of a written request from another. There must be sufficient grounds for the request
including an adequate description of the person and bank in question. "Fishing expeditions"
(i.e. random,
indiscriminate searches) are not permitted under Art. 26 in any way.
Top
What
are the specific requirements for administrative assistance?
Under
the currently applicable regulations and in future, the following conditions must be met:- the
foreign tax authority must submit a written request, indicating sufficient grounds for suspicion of
tax evasion (tax fraud was already covered, but tax evasion is new);
- the
taxable person must be identified in the request;
- the facts
of the tax evasion must be adequately described;
- a specific
bank or branch must be named.
Taxable persons who
do not consent to administrative assistance may appeal against the process.
Top
What
are the Swiss Bankers Association's conditions for future negotiations?
Switzerland
is a sovereign nation. The SBA has called upon the Federal Council to defend the principles of our constitutional
state in its forthcoming bilateral negotiations of new double taxation agreements. International standard
practice forbids new double taxation agreements from taking retroactive effect. In other words, information
from the years preceding the amended double taxation agreements will not have to be provided. The SBA
also demands that unilateral pressure be excluded by contract ("exclusivity"). Finally, the
SBA requests that other jurisdictions – particularly those that come under the influence of the EU and
USA – rapidly take similar action.
Top
Are
Swiss clients affected by this arrangement?
No. The Federal
Council has stipulated that nothing will change for Swiss taxpayers. As before, minor tax offences in
Switzerland will not be treated as a criminal offence, but they will be subject to heavy fines. Bank-client
confidentiality will continue to be lifted only if there is a suspicion of serious tax offences (tax
fraud).
Top
Why
are
foreign clients being
treated differently from Swiss clients?
The Federal Council
concluded that due to increased international pressure in the wake of the financial crisis, Switzerland
had to offer to negotiate. The SBA is of the same opinion and welcomes the Federal Council's decision.
As a result, there will no longer be a distinction between tax evasion and tax fraud for clients domiciled
outside of Switzerland, depending on the form of the new double taxation agreements. The key point is
that bank-client confidentiality remains in place for all foreign clients not under suspicion.
Top
Will
Switzerland lose market share as the largest provider of offshore banking services?
Switzerland
is the world leader in cross-border wealth management, with a global market share of 27%. The core values
of Swiss banking are expertise, stability, an international focus, and discretion. All of these values
will hold steady as the Federal Council pursues its forward strategy. Financial privacy will still be
guaranteed to foreign clients not under suspicion. This is a key asset in a world where personal privacy
is constantly dwindling. "Fishing expeditions" will not be permitted under the new double
taxation agreements
that are negotiated. Administrative assistance will only be provided if there is justified suspicion
that tax evasion or tax fraud has taken place.
Top
Why
is Switzerland the only country that has to do this? What about other countries with bank-client confidentiality?
Switzerland
is not the only country to do this. Due to the financial crisis, international pressure has increased
on many countries with similar legislation over the last few months. Based on our analysis, many jurisdictions
have recently taken similar steps, or indicated that they will soon do so. Examples include Singapore,
Hong Kong and Liechtenstein, which have said they will adopt the content of Art. 26 of the OECD's Model
Agreement.
The SBA will make great efforts to
ensure that the double taxation agreements to be negotiated take ongoing international developments
into account. This will allow Switzerland to maintain a level playing field with other countries while
protecting its leadership status in cross-border wealth management. We would like to single out such
issues as the lack of disclosure rules for beneficial owners in the USA, trust laws in the UK, and Delaware
corporations, also in the USA.
Top
Why
has Switzerland succumbed to international pressure so quickly?
Time
and again, Switzerland has examined its tax laws and the implementation of administrative assistance
with regard to tax issues. In the wake of the financial crisis, the international situation has changed
so rapidly that the G20 group of the most important industrialised nations increased pressure on countries
with bank-client confidentiality laws in tax matters. The main reason for this is that remedies for
the economic crisis continue to cost huge sums, which in turn has caused countries to consider the availability
of tax revenues. Once the G-20 nations threatened to blacklist Switzerland as a tax haven, it had to
consider the potential risks to its entire economy and decided to proceed with this forward strategy.
Top
What
steps has
the Swiss Bankers
Association taken?
The SBA quickly realised that international
pressure on countries with bank-client confidentiality would continue to grow. Over the last six months,
it held extensive discussions about potential scenarios and solutions. Ultimately, the SBA‘s Board of
Directors decided that the forward strategy could and should be implemented for the benefit of Switzerland.
Top
What
happens next?
In the coming months, Switzerland will re-negotiate
its double taxation agreements with different countries if requested to do so. The OECD model agreement,
along with the guidelines listed in the answer to Question 1, will serve as a starting point for these
negotiations.
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