On 23 July 2015 the Netherlands submitted a request for administrative assistance to the Swiss Federal Tax Administration (SFTA) concerning UBS clients that were not named (a so-called group request). In fall 2015, the SFTA approved this group request. In the face of this, an affected Dutch taxpayer filed an appeal with the Swiss Federal Administrative Court, which was approved with its ruling dated 21 March 2016.
The group request placed by the Netherlands
After the Dutch voluntary disclosure program closed, the Dutch tax authorities tried to obtain the names of persons who did not fulfill their tax obligations and who did not participate in the voluntary disclosure program. In a first step, the Netherlands submitted a group request relating to UBS clients to the SFTA in July 2015. In principle, the clients domiciled in the Netherlands of UBS, who had held an account with UBS in Switzerland between 1 February 2013 and 31 December 2014 and who had specific characteristics listed below were affected by this group request:
- UBS had sent the client in question a letter where they were told that their account would be canceled unless the client could prove his or her tax compliance.
- The client did not prove his or her tax compliance to UBS.
In February 2016, the Dutch tax authorities submitted a practically identical group request for Credit Suisse clients.
The Swiss Federal Administrative Court’s ruling
After the SFTA approved the group request from the Netherlands dated 23 July 2015, a bank client concerned filed an appeal with the Swiss Federal Administrative Court. With its ruling of 21 March 2016, the Swiss Federal Administrative Court approved this appeal for the following reasons:
- The protocol on the double taxation agreement signed between Switzerland and the Netherlands (DTA NL) explicitly states that the taxable person must be mentioned by name in order for the requesting country to receive administrative assistance. Therefore, no administrative assistance may be provided under a group request as in this case the names of the taxable persons concerned are not mentioned.
- In view of the clear wording of the DTA NL, group requests are also not possible on the basis of an interpretation or in consideration of the commentary to the OECD Model Tax Convention, which allows group requests as from July 2012.
- The Tax Administrative Assistance Act or its implementing ordinance may also not be used to argue such a case, despite the fact that it explicitly allows group requests dating back to 1 February 2013.
Impact of this ruling
Other double tax agreements and tax information exchange agreements (TIEA) of Switzerland with an administrative assistance clause as stipulated in the OECD standard also generally foresee that the taxable person is to be identified by name. Therefore, the Swiss Federal Administrative Court is expected to reject other group requests that may be launched by countries with which Switzerland holds a DTT or a tax information agreement. However, it remains to be seen whether the Swiss Federal Administrative Court will come to the same ruling if the relevant DTT/TIEA has been signed, after the OECD decided in July 2012 that group requests shall be admitted.
Group requests under the OECD Administrative Assistance Convention
We consider that group request should be acceptable under the OECD Administrative Assistance Convention which was ratified in Parliament in December 2015 and which is expected to enter into force on 1 January 2017. According to article 18 of the OECD Convention, the name of the taxpayer is only required to be mentioned “where appropriate”. After its entering into force, the OECD Convention provides for a retroactive effect going back three years for intentional tax offenses subject to prosecution under the criminal laws of the applicant country.
If these conditions were given, the Netherlands could therefore re-submit its group request after entry into force of the OECD Convention in Switzerland, however with retroactive effect limited back to 1 January 2014. Moreover, the other 90 or so countries that signed the OECD Convention too, could also place group requests for client data of Swiss financial institutions.
Automatic Exchange of Information
After Parliament has ratified the implementation of the automatic exchange of information (AEoI) in December 2015, there are hardly any doubts as to whether the AEoI will enter into force in Switzerland on 1 January 2017. Switzerland has already agreed with the EU for all EU member states, as well as with Canada, Guernsey, Isle of Man, Iceland, Japan, Norway and South Korea on the introduction of the AEoI, with a first exchange of 2017 data in 2018. As at 2018, Switzerland will also introduce the AEoI with other countries, which are not yet known.
While the AEoI will enforce tax compliance going forward, persons who have not been above board with their taxes could assume that, in view of the Swiss Federal Administrative Court’s ruling of the Dutch group request, they could get off scot-free. However, such an attitude is highly risky. On the one hand, it may be possible that the ruling handed down by the Swiss Federal Administrative Court may still be re-assessed by the Swiss Federal Court and on the other hand, the OECD Convention allows group requests as from 2017.
This means that persons who still hold undeclared assets should disclose these as soon as possible, especially in view that many countries are offering rather attractive voluntary disclosure programs at the moment.
- General information on voluntary disclosures incl. country overview
- Regulatory Horizon: Interactive overview of the most important regulatory topics in the financial industry
- Article: The AEoI will enter into force in less than a year