The collective request for information under article 26 of the OECD Model Tax Convention
On July 25, 2015, based on the Double Taxation Agreement between Switzerland and the Netherlands ("DTA CH-NL"), entered into on February 26, 2010 and taking over international standards with regard to exchange of information, more particularly article 26 of the Model Convention, the Netherland tax authorities filed a request for mutual assistance in tax matters with the Federal Tax Administration ("FTA").
This request was the first "collective" request based on article 26 of the DTA CH-NL, which has a similar content to the vast majority of the DTA's which have been renegotiated by Switzerland. This collective request regarded an undetermined number of taxpayers meeting the following criteria: being holder of an account with the bank UBS Switzerland AG; being resident in the Netherlands; being recipient of a letter sent by UBS, according to which the account shall be closed if the account holder was not able to demonstrate that the assets are regularized from a tax perspective; and finally not having provided sufficient evidence showing the tax regularization of the assets following the letter sent by UBS.
However, the collective request filed by the Dutch authorities did not mention any specific names, addresses or account numbers. Hence, the request had a very broad scope and could have been regarded as a "fishing expedition", requests which Switzerland does not accept. Upon examination of the request, the FTA has accepted and proceeded to the execution of the request. An account holder has lodged an appeal against the decision of the FTA with the Federal Administrative Court ("FAC").
The FAC has ruled in favor of the account holder, based on the clear text of the Protocol of the DTA CH-NL, which provides that in order to accept a request, sufficient information allowing the identification of the taxpayer must be provided, in particular the name as well as, if possible, the address, the account number, the date of birth, the civil status and the individual taxpayer number. According to a mutual agreement specifically addressing the issue, signed in 2011 by Switzerland and the Netherlands, the identification may thus be established by other means than the name and the address. Notwithstanding, the FAC stated that this mutual agreement could not ease the requirements of the DTA CH-NL, which would otherwise be meaningless. Hence, the FAC found that the FTA should not have proceeded with the execution of the collective request based on the provided information by the tax authorities of the Netherlands.
In a judgment dated September 26, 2016, the Federal Supreme Court ("FSC") decided, in a three-to-two vote between the judges, to annul the decision rendered by the FAC. According to the majority of the FSC judges, collective requests without indication of names are in general admissible, provided that the request contains sufficient information to identify the persons concerned. The FSC based its argumentation in particular on the mutual agreement from 2011, invoking articles 31 and 32 of the Vienna Convention on the Law of Treaties dated May 23, 1969, which provide that supplementary means of interpretation such as the preparatory work of the agreement and the circumstances of its conclusion may be used in cases where traditional interpretation rules lead to an unclear or manifestly unreasonable result. The FSC stated that such is the case of article 26 of the DTA CH-NL, which shall be interpreted in the light of the mutual agreement. It therefore follows that only an interpretation leading to the admissibility of the request is in line with the principle of good faith and is in the interests of Switzerland, taking into account its reputation with respect to cooperation between States. Furthermore, the FSC retains from the Protocol to the DTA CH-NL that the latter aims at "ensuring an exchange of information with respect to tax matters as broad of possible, without however allowing the contracting States to make a fishing expedition". The FSC ruled in favor of the FTA, which has proceeded with the execution of the request without information such as the name or the address, and confirmed that this case does not constitute a "fishing expedition".
Exchange of information in case of stolen data
Several cases of theft of confidential information, some of which were subject to the banking secrecy, have been reported over the last couple of years. Based on this, several States have filed requests for information, in particular on the basis of illegally obtained data.
Over the past few years, Switzerland incorporated article 26 of the OECD Model Convention and included the international standards on administrative assistance in tax matters in the renegotiation of its conventions. In 2013, the Federal Act on International Administrative Assistance in Tax Matters ("TAAA") entered into force. Ever since, Switzerland accepts collective requests regarding facts which occurred as of February 1, 2013.
Furthermore, the TAAA introduced the possibility of not granting certain requests for administrative assistance, in particular in order to avoid fishing expeditions. Further, Switzerland does not grant the request for administrative assistance if it violates the principle of good faith, particularly if it is based on information obtained through a criminal offence under Swiss law (TAAA, art. 7 lit. c). As the theft of banking data constitutes a criminal offence under Swiss law, a request based on illegally obtained through such an offence should be rejected by the FTA.
This is what the FAC has ruled (ATAF 6843/2014) regarding the request for assistance filed by the French authorities dated December 23, 2013, which was mainly based on information presumably obtained through a criminal offence under Swiss law. The fact that the requesting State has only acted in a "passive" manner, which means that it has solely used the illegally obtained data, is not sufficient to waive the application of article 7 lit. c of the TAAA.
Again, the FSC annulled the FAC decision in a judgement dated February 16, 2017 (2C_893/2015). According to the FSC, article 28 para. 3 let. b of the Double Taxation Agreement between Switzerland and France ("DTA CH-F") does not provide that a request for administrative assistance can be rejected on the basis of the manner in which the requesting State has obtained the data which led to the opening of the mutual assistance. Furthermore, the FSC ruled that the French authorities acted in good faith as the French legislation issued in 2013 expressly provides that information cannot be rejected only based on the way it was obtained. This allows the tax authorities to use the information they receive as they have been "regularly" brought to their attention even if the individual who stole the data committed an offense in first place. It is for example the case if the French tax authorities have received the information from the Public Prosecutor's Office or the French Prudential Supervision and Resolution Authority. Finally, article 7 lit. c of the TAAA needs to be interpreted restrictively. According to this provision: "[t]he request will not be considered if: […] it violates the principle of good faith, particularly if it is based on information obtained through a criminal offence under Swiss law". The Supreme Court held that this implied that the expression "through a criminal offence under Swiss law"" refers to acts which are effectively punishable in Switzerland. This presupposes, on the one hand, that the objective conditions of the allegedly Swiss criminal offense are fulfilled and, on the other hand, that those acts fall within the territorial jurisdiction of Switzerland or in the various forms of extraterritorial jurisdiction provided for in Swiss Criminal Code. As the data had been stolen in France from a French subsidiary of UBS, there is no territorial jurisdiction in Switzerland. Therefore, the administrative assistance request fulfilled the formal and material conditions provided by the DTA CH-F.
Furthermore, the FSC released another judgment dated March 17, 2017 (2C_1000/2015) regarding the mutual administrative assistance in tax matters. This case relates to an assistance request filed by the French authorities based on data stolen from HSBC in Switzerland by Hervé Falciani (Falciani SwissLeaks). First of all, the FSC confirmed that the good faith principle provided for in article 7 lit. c of the TAAA arises in particular from article 31 of the Vienna Convention on the Law of Treaties and in the field of international administrative assistance in tax matters. The FSC concludes that the Swiss Authorities can reject the assistance under article 7 lit. c of the TAAA when an investigation has been initiated in the requesting State based on information obtained through acts effectively punishable in Switzerland. In other words, an indirect causal link between the theft of data in Switzerland and the French request is sufficient to refuse to consider the request for mutual assistance. It is specified that France committed to Switzerland not to make use of the Falciani data. Therefore, this commitment binds France pursuant to the good faith principle. Unlike in the above mentioned judgement, the French administrative request was based on data effectively stolen in Switzerland, an offense for which the Swiss criminal authorities are competent. The request for mutual assistance was hence denied.
Finally, in order to comply with international requirements, the Federal Council has submitted a draft of amendment of the TAAA on July 10, 2016 to the Parliament, aiming at granting administrative assistance when the latter is based on stolen data obtained in a passive manner. Under this draft, administrative assistance would remain excluded if the State actively sought to obtain stolen data outside of an administrative assistance procedure. This draft is the second of its type submitted to the Parliament, and is still to be adopted.
Automatic exchange of information
Switzerland signed the majority of international instruments which have been developed with a view to introducing automatic exchange of information, such as the Convention on Mutual Administrative Assistance in Tax Matters, as well as the Multilateral Competent Authority Agreement on automatic exchange of financial account information (Multilateral Competent Authority Agreement or "MCAA"). Furthermore, Switzerland included the necessary legal provisions to allow the implementation of the automatic exchange of information in its internal legislation. Those new legal provisions shall allow Switzerland to collect information as from 2017 to automatically exchange as from 2018.
It should also be underlined that the Agreement on the Taxation of Savings between Switzerland and the European Union, as regards the issues relating to exchange of information, has been fully replaced by new provisions on exchange of information.
Exchange of country-by-country reports
As a part of the BEPS draft, Switzerland and thirty other States signed, on January 27, 2016 in Paris, the Multilateral Competent Authority Agreement on the Exchange of CbC Reports (CbC Reports Agreement). The country-by-country report contains information provided by States and territories with respect to the global distribution of the income, of the paid taxes and other key numbers of multinational enterprise groups. This document shall thus be established by multinational enterprise groups which have a consolidated annual income of more than CHF 900 million. It provides data on the main economic activities performed by these groups. Based a first estimate, the duty to provide a country-by-country report should concern about 200 groups based in Switzerland.
On November 23, 2016, the Federal Council adopted the message regarding the Multilateral Competent Authority Agreement on the Exchange of CbC Reports, as well as the legislation necessary to implement this agreement (the Federal Act on the International Automatic Exchange of Country-by-Country Reports of Multinationals, AECbCR). The aim of this draft is to harmonize Swiss legislation on taxation of multinationals while fixing a uniform framework for the exchange of these reports. The message is currently submitted to the Swiss Parliament, and the agreement as well as the federal legislation are expected to enter into force in early 2018.
For the past 6 years, Switzerland has been able to completely and effectively overhaul its legislative framework, both international and domestic, so as to comply with current standards of exchange of information in tax matters. The peer review and other similar mechanisms will maintain the pressure on Switzerland, but will also establish a worldwide level playing field. At the end, Switzerland will benefit from this transparency.