Switzerland is implementing the new standards in the global fight against tax fraud and tax evasion. The legislative process is in full swing in order to have the required legalisation in place by 2017. The Confederation’s aim is to safeguard its political and economic interests in view of the international challenges without neglecting the personal rights of the taxpayer.
a. OECD and Council of Europe Convention on Mutual Administrative Assistance in Tax Matters
In the reporting year there were a number of different consultation procedures on international cooperation in tax matters in which we were asked to give our opinion. Since Switzerland agreed in March 2009 to adopt international legal regulations in this field, (cf. 19. 2011/2012 annual report, section 1.9.1) the situation has changed dramatically. On 15 October 2013, the government signed the joint OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters, an agreement originally drawn up in 1988 which provides for multilateral cooperation among the parties in a wide range of tax matters.
Several forms of cooperation are provided for, including the automatic exchange of information. Incorporating this new type of administrative assistance into national law requires the creation of legal bases and the revision of certain standards. The Federal Council thus proposed certain changes in the Federal Act on International Administrative Assistance in Tax Matters (TAAA). A special law regulating the details of the automatic exchange of information was also drafted (see b. International automatic exchange information in tax matters).
Following the signing of the Convention, a federal decree relating to its approval was drafted. The partial revision of the TAAA, which will be included in the annex to this decree, formed the main focus of our remarks. During the consultation procedure we drew the attention of the Federal Department of Finance (FDF) in particular to issues relating to the amount of legislation, the procedural rights of the taxpayer and problems in using the OASI (state pension) number for international tax identification purposes. The FDF took our remarks into account in some cases, in particular in relation to the creation of a sector-specific identification number to replace the use of the OASI number.
Following the office consultation procedure certain divergences from the FDF's position remained, and we raised these with the Federal Council in a joint reporting procedure. The draft revision of the TAAA allows, for example, for personal data to be passed on to other Swiss authorities (apart from the tax authorities) for purposes other than those relating to tax. This is problematic in terms of both the legal principle of speciality and the data processing purpose; in the present case, data should be processed for taxation purposes only. We therefore proposed that the law should clearly specify the other authorities to which personal data may be passed. In such a situation, the procedural rights of the persons concerned and in particular their right to a hearing in accordance with the law should be expressly guaranteed. However, in discussions held on 5 June 2015, the Federal Council decided to adopt the FDF's proposal unchanged.
b. International automatic exchange of tax information
In our last annual report (see 22nd annual report 2014/2015, section 1.9.2), we mentioned the working group set up following the OECD's decision in July 2014 to introduce the Common Reporting Standard (CRS or Standard) for the automatic exchange of information (AEoI) in tax matters. We were asked to give our opinion on various points relating to data protection. In this way, sensitive issues could be identified and addressed in advance. In view of the considerable scope of the case and the very ambitious time schedule, this course of action was to be welcomed. Indeed, in the course of 2015 a considerable number of pieces of draft legislation were submitted for consultation so that the new standard could be implemented and the deadlines set by the OECD could be met.
Under the CRS, countries will automatically exchange information on taxpayers who have an account or accounts with a financial institution abroad. The CRS also includes an instrument, binding under international law, for the multilateral implementation of this automatic exchange of information, the Multilateral Competent Authority Agreement (MCAA), which was signed by Switzerland on 19 November 2014. Implementing legislation must be drawn up before the provisions of this Agreement and of the CRS can be applied. This will take the form of the new Act on the International Automatic Exchange of Information on Tax Matters (AEIA), due to come into effect in 2017. The act will contain provisions on organisation, procedure, legal remedies and criminal provisions.
In the office consultation procedure we essentially argued in favour of leaner legislation, i.e. for a clear and more detailed formulation of certain provisions. Furthermore we asked that those taxpayers affected by the automatic declaration should be expressly informed. This would guarantee that the principles of transparency and good faith are respected when data is processed. These principles assume that the person concerned can ascertain the accuracy of the information before it is passed on to the authorities abroad. Without this mechanism, the taxpayer would have to systematically submit a request for information to the financial institution. Simply providing general and abstract information, for example on the general terms and conditions of business, is inadequate.
As had already been the case in the office consultation procedure on the federal decree on the approval of the Agreement, there were also differences of opinion over the draft of the AEIA. However, the FDF did not present them to the Federal Council. We therefore addressed them in the joint reporting procedure, once again clearly expressing our viewpoint that those persons whose information is passed on to the authorities abroad should be specifically and individually notified. However, in discussions held on 5 June 2015 the Federal Council decided to adopt the proposal of the FDF unchanged.
During the parliamentary procedure the matter of tax identification using the OASI number was raised once again, although the Federal Council had already decided to introduce a sector-specific number. In the autumn session the National Council, the first chamber to debate the issue, initially adopted our viewpoint (see on this matter the legal opinions of the Federal Office of Justice of 5 August 2015, published at: www.parliament.ch). The Council of States, however, spoke in favour of the use of the OASI number. This divergence was finally eliminated in the winter session of Parliament, when there was a final vote in favour of the Council of States' original decision - for a system of international tax identification by means of the OASI number in the automatic exchange of information.
c. Procedure for the international implementation of AEoI
The CRS can be applied between states in two ways: either with a bilateral agreement such as that of 27 May 2015 between Switzerland and the European Union (see e.: Federal decree on the approval of a protocol to amend the agreement on the taxation of savings income between Switzerland and the EU); or on the basis of the MCAA, which itself is based on this agreement. This second solution was preferred for the introduction of the AEoI between Switzerland and Australia (see d. Federal decree on the introduction of the AEoI with Australia). Application on the basis of the MCAA must meet the following four requirements:
• the Agreement must be in force for both states;
• both states must have signed the MCAA;
• both states must have confirmed that they have the necessary legislation in place to implement the Standard;
• both states must have informed the coordination agency secretariat of their intention to mutually apply the AEoI.
In general, Switzerland selects its partner states according to other criteria: usually these are existing economic and political relations; a procedure for regularising the past, whereby taxpayers can, as required, put their tax situation in order; access to markets and an adequate level of data protection. The State Secretariat for International Financial Matters (SIF) examines these criteria and on several occasions has asked for our opinion on issues relating to data protection. We informed the SIF that no additional guarantees are required for the bilateral activation of an AEoI with a foreign legal system which has a sufficient level of protection in place, in accordance with the list of states published on our website. In the case of countries not in this category, however, additional guarantees are required.
A panel consisting of twelve experts, mainly IT specialists, was instructed by the OECD to assess confidentiality and compliance with the principle of speciality in various foreign legal systems, using the model questionnaire found in Annex 4 of the CRS. These mainly deal with technical requirements and aspects of information security. Conducting on-the-ground checks in this context is generally unproblematic. Rights derived from basic privacy rights, such as the right to information and the right to deletion of data, are not considered. The questionnaire is thus an incomplete instrument and does not permit an overall assessment of the level of protection of personal data in a foreign legal system. We advised the SIF that activating the AEoI with a third country without the introduction of additional guarantees, despite this country having been assessed positively by the panel of experts, would entail risks.
d. Federal decree on the introduction of the AEoI with Australia
As mentioned above, the MCAA and the draft of the AEIA provide the legal principles on which the AEoI is based, without specifying the states with which AEoI is to be introduced. Australia is one of the partner states with which Switzerland would like to introduce the AEoI, with initial discussions planned for 2018. The bill was submitted for consultation in 2015, and we had the opportunity to contribute some remarks on the topic. In particular we indicated that attention should be paid to whether Australian legislation includes the right to privacy in tax matters and whether it also allows the data of foreign nationals and legal persons to be collected.
According to the FDF's evaluation made in a proposal to the Federal Council, Australian law contains appropriate data protection guarantees for the introduction of the AEoI with Australia.
e. Federal decree on the approval of a protocol to amend the agreement on the taxation of savings income between Switzerland and the EU
The AEoI with the EU was activated on 27 May 2015. In this case the activation process was different to that via the MCAA, as was the case with Australia. Here the existing agreement on the taxation of savings income between Switzerland and the EU could be used to implement the AEoI. An Amending Protocol was planned to change the content of the above agreement almost completely into an agreement on AEoI.
In the office consultation procedure our remarks referred in particular to compliance with the limitation of purpose principles, according to which data may only be processed for tax purposes. This was partially taken into account by the FDF.