The Automatic Exchange of Information (AEoI) has been in force in Switzerland since 1 January 2017. This means that Switzerland will start exchanging 2017 data with the EU member states, Australia, Guernsey, Isle of Man, Iceland, Japan, Jersey, Canada, Norway and South Korea for the first time in September 2018. In 2019, Switzerland will most likely start exchanging 2018 data with at least 41 additional countries. But what does this really mean?
Who will be reported?
The following persons/entities will be affected: Anyone directly holding an account with a Swiss Financial Institution or who is deemed a controlling person of a passive Non-Financial Entity (NFE) (e.g. trust, foundation or domiciliary company) in the form of a beneficiary, settlor, protector or similar. Persons resident in a Swiss AEoI partner state will have to be reported. Switzerland will probably report 2018 data to more than 80 countries in 2019:
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What will be reported?
The data to be reported can be categorized into three categories:
- Identification data identifies the account holder or controlling person, such as name, address, tax domicile and the role played by the controlling person.
- Account data includes the account number, the name of the reporting financial institution and its address.
- The financial data to be reported consists of the total balance as at calendar year’s end as well as gross income (interest, dividends, other income) and the gross proceeds. For reportable insurance policies and investment companies (especially trusts, foundations and domiciliary companies) not only the value is reported but also all of the payments made to the account holder. Even if the account is held by several persons or the passive NFE has several controlling persons, the total amounts are to be reported for all persons (e.g. the total balance for both owners of a joint account).
What happens if clients are reported who did not declare all of their assets as required?
The AEoI reporting does not require the approval from the person who is subject to the reporting. This means that the AEoI report may well include persons who did not declare their assets as required by law. Even if it is not yet clear how the receiving states will analyze the AEoI reports received, persons who still have non-declared assets run the risk of being identified due to these reports.
Trying to slip off in order to avoid being reported under the AEoI is also very risky, as especially such persons may be included in group requests (for more detail, also read: Tax transparency with group requests). Currently, already more than 100 countries could make group requests on clients of Swiss banks, insurance companies and even trust companies, based on double taxation treaties, tax information agreements or the OECD Convention on Mutual Administrative Assistance in Tax Matters.
Persons who have not yet done so should therefore seriously consider filing a voluntary disclsoure.
Will persons living/domiciled in Switzerland also be subject to reporting?
Persons living/domiciled in Switzerland will be included in the AEoI reporting if they hold an account with a financial institution located in an AEoI partner state to Switzerland. For instance, a person domiciled in Bern with an account in Munich will already have 2017 data relative to this account revealed to the Swiss Federal Tax Administration in 2018. If this person is also the beneficiary of a Liechtenstein foundation with an account at a Swiss bank, this person would also be reported by the foundation if this foundation were qualified as an investment company (also read: Who will be in scope of the AEoI). This report would only concern 2018 data to be reported in 2019 as the AEoI between Switzerland and Liechtenstein will only become valid in 2018.
Because of this, persons living in Switzerland who have failed to declare all of their assets should also consider applying for a penalty-free voluntary disclosure. This would entail having to pay arrears and interest on these for the last ten years if applicable, but avoid a penalty. Should the Swiss tax authorities detect these assets by themselves, this could entail a penalty amounting up to a maximum of three times the arrears.
With the entering into force of the AEoI, a new era of tax transparency has dawned in Switzerland. Because of this, it has become practically impossible to hide undeclared assets abroad, which means that persons still holding non-declared assets should think of legalizing these as soon as possible with a voluntary disclosure. This also concerns persons living in Switzerland holding accounts abroad. However, even persons who have declared all of their assets should take a moment to think about the AEoI and its ramifications for them. For instance, it may be appropriate to inform the tax authorities beforehand that they may receive an AEoI report if, for instance, in the country in question the matter does not have to be disclosed in the tax returns (e.g. beneficiary of a discretionary foundation). This move may prove crucial in avoiding a tax audit.
- Automatic Exchange of Information
- Voluntary Disclosures
- Regulatory Horizon: Interactive overview of important regulatory topics in the financial industry