The disclosure of data to foreign tax authorities is a subject that is at the top of the political agenda and it has sparked a controversial public debate. Looking at the issue from a data protection perspective, our focus has been directed primarily at the double taxation agreements, the new Tax Administrative Assistance Act, as well as the Foreign Account Tax Compliance Act (FATCA).
Double taxation agreement
The Federal Council continues to negotiate new double taxation agreements (DTAs) with other countries, or revises existing agreements, as a result of the extension of international mutual assistance in tax matters and with a view to adopting the OECD standard, particularly regarding the exchange of information. We have already set out our position on this subject once before (see our 18th Report on Activities 2010/2011, Section 1.9.3, in German or French). On 13 February 2011, the Federal Council decided to adapt the requirements applicable to the identification of taxable persons and information holders to the current international OECD standard. With immediate effect, any request for administrative assistance based on a DTA containing an exchange of information clause in accordance with Article 26 of the OECD model tax treaty will be granted, provided that it can be shown that such a request is not a «fishing expedition», and that the requesting country has: a) identified the taxpayer, whereby the identification does not have to be done on the basis of a name or address, and in exceptional cases, an account number may be sufficient; and that b) it can provide the name and the address of the supposed information holder if these are known. Should the details provided to the Swiss authorities be insufficient to identify the information holder, the principles of proportionality and practicability shall apply. Requests involving a list of account numbers without further details will be considered as fishing expeditions and therefore rejected. In the light of this situation, we have come to the conclusion that the practice is in line with data protection rules.
Tax Administrative Assistance Act
Administrative assistance clauses contained in double taxation and other international tax-related agreements do not regulate how requests should be handled at the national level. Currently this is regulated by the Ordinance on Administrative Assistance as provided for in double taxation agreements. However, this does not meet the legality principle. The Federal Council has therefore prepared a bill on international administrative assistance in tax matters (Tax Administrative Assistance Act). The law lays down how administrative assistance is to be handled within the context of agreements that provide for the exchange of information in tax-related matters.
In principle, the Data Protection Act also applies to international administrative assistance requests, unless otherwise regulated by a specific law. In the case of international administrative assistance relating to tax matters, the Tax Administrative Assistance Act will in all future cases take precedence over the Data Protection Act and be deemed a lex specialis. As part of the interministerial consultations, we examined the draft bill to ensure compliance with the FADP and came to the conclusion that the requirements in terms of the legality principle (Article 17 FADP) and the disclosure of personal data to third parties (Article 19) are met. The purpose of the processing, as well as information about the person performing the data processing, the recipient of the data, the volume of data collected and its processing and disclosure are covered by detailed regulations; furthermore, the rights of the persons concerned are guaranteed.
Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act (FATCA) designates a US law which comes into force on 1 January 2013 and aims at preventing tax evasion by US citizens. The law applies also to foreign financial institutes (FFI), i.e. banks, insurance companies etc., that invest in US securities either on behalf of their clients or on their own behalf. FFI are required once a year to automatically provide the IRS, the US tax authority, with comprehensive data on all US taxpayers; failure to do so will result in the imposition of a 30% withholding tax on all income generated in the USA. US taxpayers include all US citizens, US dual nationals, green card holders, and also persons who are considered tax residents. The US tax authorities require at the very least that they be given information about the account holder, his/her address, TIN (tax identification number), account number, bank balance, gross income, gross withdrawals and transactions. If a notifiable account is identified, the account holder or the beneficial owner must be asked to provide their consent for the data to be transmitted to the USA and banking secrecy to be lifted. Should the person concerned refuse permission, the account must be closed and the US tax authorities notified.
We are very critical with regard to this US law which has been applied unilaterally. Firstly, because the direct disclosure of data by private financial institutes to the US tax authorities is tantamount to the automatic exchange of information, a measure which circumvents the usual administrative assistance channels. Secondly, we believe that there are many aspects of FATCA that are not in conformity with our Data Protection Act. During a hearing organised by the Foreign Affairs Committee of the Council of States (Swiss Senate), we voiced our reservations. These concern the validity of the authorisation to lift banking secrecy, the proportionality of the clause defining who is a US taxpayer, and the amount and content of the data that have to be reported. Last and not least, we take issue with the fact the US tax authorities are not bound to treat the information they receive as confidential.