Swiss Federal Supreme Court considers Dutch Group Request as permissible

in Financial Services, Legal, Tax, 14.09.2016

In July 2015, the Netherlands submitted a request for administrative assistance to the Federal Tax Administration (FTA) concerning UBS clients that were not named (a so-called group request). While the FTA found this group request to be permissible in fall 2015, the Swiss Federal Administrative Court on the other hand deemed it not permissible. However, upon its deliberations held on 11 September 2016, the Swiss Federal Supreme Court now decided that this group request was acceptable after all, thus overturning the Swiss Federal Administrative Court’s decision.

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 neither fulfilled their tax obligations nor participated in the voluntary disclosure program. In a first step, the Netherlands submitted a group request relating to UBS clients to the Swiss Federal Tax Administration (FTA) in July 2015. In principle, UBS clients domiciled in the Netherlands who had held an account with UBS in Switzerland between 1 February 2013 and 31 December 2014 and who had the specific further characteristics listed below were affected by this group request:

  • UBS had sent the client in question a letter in which they were informed that their account would be canceled unless the client could prove his or her tax conformity.
  • The client did not prove his or her tax conformity 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 decision

After the Swiss Federal Tax Administration approved the group request from the Netherlands, a banking client concerned filed an appeal with the Swiss Federal Administrative Court. With its decision of 21 March 2016, the Swiss Federal Administrative Court approved this appeal mainly because of the following reason:

  • The protocol on the double taxation treaty signed between Switzerland and the Netherlands (DTT 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 for a group request as this alternative does not (could not) list the name of the taxable persons concerned.

The Swiss Federal Supreme Court’s decision

Contrary to the Swiss Federal Administrative Court, the Swiss Federal Supreme Court now concluded that no client names needed to be given in order to be able to provide the administrative assistance as per the DTT NL.

According to the Swiss Federal Supreme Court’s interpretation of the DTT NL, it is sufficient if the group request contains sufficient information that will allow an identification of the person in question to be able to provide administrative assistance. That specifically naming a client is not mandatory is due to the purpose of the DTT NL, which according to the relevant protocol consists of, “an exchange of tax information to the maximum extent without allowing the states partial to the agreement to go on “fishing expeditions”.

Finally, the Swiss Federal Supreme Court also checked whether this could be considered a legitimate group request or indeed a fishing expedition, which would not have been permitted. Despite the fact that the definition of group in the present request for administrative assistance goes quite far, the Swiss Federal Supreme Court judged that it is not an inadmissible fishing expedition.

The consequence of the Swiss Federal Supreme Court’s approval of the administrative assistance request is that the similar administrative assistance procedures applicable to Credit Suisse clients can now be taken up again.

Impact of this decision

Switzerland has already concluded more than 60 double taxation treaties and tax information agreements, which permit administrative assistance based on group requests. Moreover, under the OECD administrative assistance convention concerning Switzerland, group requests will be possible in any case as of 2017. The administrative assistance convention foresees retroactive effect to 1 January 2014.

We expect a number of other states to follow the example set by the Netherlands and to address Switzerland with similar group requests. At this time, it remains to be seen which countries will place a similar request.

Conclusion

While tax transparency will be assured with the Automatic Exchange of Information (AEoI) going forward, persons who so far have not declared their assets and who wish to close out their accounts or deposit accounts prior to the entry into force of the AEoI could nonetheless be caught in a group request. This means that trying to avoid the AEoI by simply “slipping off” is not possible or very risky.

Therefore, persons who still hold undeclared assets should disclose these as soon as possible, especially in view of the fact that many countries are offering rather attractive voluntary disclosure programs at the moment. After all, Switzerland will transmit tax data regarding 2017 for the first time in September 2018 to the EU member states, Australia, Guernsey, Isle of Man, Iceland, Japan, Jersey, Canada, Norway, and South Korea.

 

 

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