Tax transparency has become one of the most important objectives on the agenda of governments throughout Europe and all important financial centers. The question is no longer whether the Automatic Exchange of Information (AEoI) will enter into force but when and with which countries.
Already in April 2013, France, Germany, Italy, Spain and the United Kingdom launched an initiative to early adopt the AEoI. In a joint statement dated October 2014, the Early Adopters Group confirmed that they intend to implement the AEoI as of 1 January 2016 and that the first exchange of information will take place in September 2017.
In the meantime, about 50 countries, including most EU member states but also states such as Argentina, Mexico, Liechtenstein or the British Virgin Islands have joined the so-called Early Adopters Group. Switzerland will most likely adopt the new regime by 1 January 2017.
Switzerland’s way toward tax transparency and the AEoI
Switzerland has been under increasing pressure for more tax transparency ever since the global financial and economic crisis and the resulting considerable financing needs of various countries. Prior to 2009, Switzerland provided administrative assistance to foreign states solely in case of tax fraud. Five years later, group requests that do not require the identification of individual foreign taxpayers by name are possible. This trend toward higher tax transparency will hardly stop until the AEoI has become the global standard.
Regularization of past tax obligations is not part of the AEoI standard
The OECD standard on the AEoI does not include any rules regarding the regularization of any past tax obligations. Therefore, generally the only option for clients who did not fully comply with their tax obligations in the past is to submit a voluntary disclosure in their country of residence.
Furthermore, clients with undeclared accounts in Switzerland must be aware of the fact that foreign states may already now obtain information about such clients by means of a group request for exchange of information.
Group requests as part of the OECD Model Tax Convention
In July 2012, the OECD updated article 26 of the OECD Model Tax Convention, which sets out the international standard on exchange of information. The update explicitly allows for group requests. This means that tax authorities are able to ask for information on a group of taxpayers, without naming them individually.
Switzerland has adopted this development and grants administrative assistance for group requests generally for periods after 1 February 2013. Such exchange of information is possible if Switzerland has concluded a double taxation agreement (DTA) with a clause according to article 26 of the OECD Model Tax Convention with the respective state. Overall, Switzerland has already signed 49 DTAs in accordance with the international standard, of which 38 are in force, and seven Tax Information and Exchange Agreements, of which three are in force.
Filing of a voluntary disclosure to be considered as soon as possible
The increasing tax transparency, in particular group requests for administrative assistance, increase the risk that taxpayers with undeclared accounts will become subject to a tax investigation in their countries of domicile. As the AEoI will be implemented by all major financial centers, filing a voluntary disclosure is generally the only way forward for taxpayers with undeclared accounts.