Swiss EU Deal To End Banking Secrecy

10.06.15

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Switzerland and the EU have signed a major accord to automatically exchange information on the financial accounts of each other's residents. EU taxpayers will no longer be able to hide undeclared funds in Swiss banks.


Switzerland and the EU have signed a major accord to automatically exchange information on the financial accounts of each other's residents. EU taxpayers will no longer be able to hide undeclared funds in Swiss banks.

After coming under increased international pressure in recent years, Switzerland has signed up to a few exchange of information agreements, bringing an end to its long tradition of banking secrecy.

The new tax transparency agreement with the EU was signed in Brussels on 27th May 2015, by EU Tax Commissioner, Pierre Moscovici; Swiss Secretary for International Finance Matters, Jacques de Watteveille, and Latvian Finance Minister Janis Reirs (Latvia currently holding Presidency of the EU Council).

The European Council describes it as an important step in efforts to clamp down on tax fraud and evasion. It estimates that EU member states lose around €1 trillion of tax revenue each year to tax evasion.

The accord will replace the EU-Switzerland taxation of savings agreement that has been in force since 2005. Under that agreement, Swiss banks deduct a withholding tax from interest earnings of EU account holders, rather than share information automatically, thereby keeping banking secrecy intact. But those days are over.

Swiss financial institutions will start to collect the necessary client and account data from January 2017, and transmit it to the Swiss tax authorities. From 2018 this information will start to be forwarded to the tax authorities of the clients’ country of residence. This will take place on an annual basis, and for every client who lives in the EU.

The data to be shared includes names, addresses, tax identification numbers and dates of birth, plus the financial information relating to the account.

The accord includes provisions to limit the opportunities for people to move assets or invest in products outside the scope of the agreement in order to avoid being reported to the tax authorities.

The information to be exchanged therefore includes not only income like interest and dividends, but also account balances and proceeds from the sale of financial assets.

The European Commission is concluding negotiations for new tax transparency agreements with Andorra, Liechtenstein, Monaco, and San Marino. The Swiss deal is however considered the most significant.

On signing the accord, Mr Moscovici said: “Today's agreement heralds a new era of tax transparency and cooperation between the EU and Switzerland. It is another blow against tax evaders, and another leap towards fairer taxation in Europe.

An EU Council press release explains that tax administrations in member states will now be able to –

  • correctly and unequivocally identify taxpayers who have not declared their assets and income;
  • administer and enforce tax laws in cross-border situations;
  • assess the likelihood of tax evasion being perpetrated, and
  • avoid unnecessary further investigations.

The Federal Council immediately launched a consultation which is open for comment until 17th September this year. The agreement will then be submitted, together with a dispatch, to the Swiss Parliament for approval.

In the coming weeks, the Federal Council will adopt dispatches on the Automatic Exchange of Information Act, the Multilateral Competent Authority Agreement, and the Organisation for Economic Co-operation and Development Economic Co-operation and Development (OECD)/Council of Europe administrative assistance convention.

Switzerland has been working to improve its image on tax policy. Banking secrecy and the inability to collect unpaid revenue has strained relations with countries like the US, France and Germany. Banks like UBS and Credit Suisse had had to pay large fines and hand over data to the US authorities.

It has signed up to both the US’ Foreign Account Tax Compliance Act (FATCA), and the Common Reporting Standard established by the OECD. Almost a hundred countries have signed up for that so far, taking automatic exchange of information to a whole new global level.

It has also started investigations into allegations that a Swiss subsidiary of HSBC helped clients hide money in secret bank accounts to avoid paying millions in taxes.

As the OECD has explained, automatic exchange of information “can provide timely information on non-compliance where tax has been evaded either on an investment return or the underlying capital sum, even where tax administrations have had no previous indications of non-compliance.

The cross-border tax landscape has changed considerably. It is important to be informed on developments and take specialist advice to ensure your tax planning conforms to local tax law and does not result in unexpected consequences. With expert advice, it is possible to take advantage of tax compliant opportunities to protect your assets from the various taxes in your country of residence.

 

5 June 2015

 

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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