Disclosure of data to foreign tax authorities

A number of bills were presented to Parliament on the subject of the disclosure of data to foreign tax authorities. We have made our position clear on the legislative work carried out on the Foreign Account Tax Compliance Act (FATCA) and the Tax Administrative Assistance Act.

During the year under review, we adopted a position with regard to draft legislation designed to regulate the transfer of tax data to foreign authorities. Our opinion on the Foreign Tax Compliance Act (FATCA) and the Tax Administrative Assistance Act is as follows:

Foreign Account Tax Compliance Act (FATCA)

In our 19th Report on Activities 2011/2012, we reported on this US law which, in our view, raises a number of data protection issues. The agreement, which was signed by Switzerland on 14 February 2013, was immediately sent out as part of the consultation procedure together with the implementing act. Fundamentally there are two models of this agreement, and Switzerland has opted for Model 2. Both models provide for a form of automatic exchange of information. Unlike Model 1, Model 2 requires foreign financial institutes (FFI), which includes banks, insurance companies etc., to report directly to the IRS (US Internal Revenue Service). According to the State Secretariat for International Matters (SIF), the advantage of this is that it offers a greater degree of protection to fiscal privacy. US account-holders, who do not consent to the disclosure of their data, may defend their rights before their data are disclosed to the IRS. However, there is currently legislative momentum towards restricting those rights.

We were invited to attend a meeting of the Committee for Economic Affairs and Taxes of the National Council (lower house) and took the opportunity of expressing our reservations. We criticised the fact that during the time when the bill was being debated in Parliament, there were still a number of unresolved issues. For example, it was not clear exactly what form the agreement between the FFI and the IRS would take and what data protection principles would be guaranteed. Furthermore, no provision was made to allow data to be corrected and to verify whether the proportionality principle would apply to data processing. Parliament has now approved the agreement and the bill. The IRS, for its part, has postponed the introduction of FATCA until July 2014.

Tax Administrative Assistance Act (TAAA)

The Tax Administrative Assistance Act came into force on 1 January 2013. Because of certain international developments, various changes had to be introduced during the course of the year. Unfortunately, we were not invited to attend the inter-agency consultations on the planned changes, as a result of which we sent a report to the Federal Council which has to adopt the draft law amending the TAAA. We criticised the procedure being put in place to provide information after the event to persons entitled to appeal a decision. Until now, any person has the right to seek legal remedy before any tax information concerning them is disclosed to a foreign requesting authority.

As of now, any person entitled to appeal will be notified by the Federal Tax Administration (FTA) only after the information has been disclosed provided that the requesting (i.e. foreign) authority can credibly demonstrate that the purpose of the administrative assistance or the success of the investigation would be thwarted were the person to be informed in advance. Our position is that the wording of the derogation was too unclear and that there was insufficient transparency with regard to the data processing. Transparency is necessary if an individual is to be able to exercise the right to privacy. The Federal Council rejected our proposal. The subject of the transmission of tax data to foreign authorities is also discussed in section 1.9.5 of the present report (in German).