Automatic Exchange of Information: Transparency and Confidentiality
As of 2017 the Swiss financial sector will have to process huge amounts of client data. Switzerland has signed an agreement for the introduction of the automatic exchange of information with the following partner states: Go to the article "Automatic exchange of information" on the Website of "The Federal Council"
Over a million data records may be transferred abroad from Switzerland each year. The data flood might also turn into a challenge for the authorities. It has been planned to manage the technical processing via a central global (i.e. for all the countries that have concluded a bilateral agreement with Switzerland) data platform. The downside of centralisation is the entailing cluster risk: the global databank with millions of financial data records might attrack hackers. This may be but one thing.
The other issue is the possible conflict between transparency and confidentiality: The scope of application of the OECD Convention covers a wide range of taxes. The contracting states are entitled to make reservations. Under the Common Reporting Standard (CRS) the extent of use of the Reportable Financial Information is reduced accordingly. All countries, including Switzerland have taken this opportunity and limited the scope of application to income, wealth, profit, capital and withholding taxes. Thus, neither Switzerland nor its Automatic Exchange of Information (AIA) contracting states may use the received Reportable Financial Information for the assessing and collecting of inheritance and gift tax, VAT, issue and sales tax and any social security contributions.
All tax authorities worldwide are subject to confidentiality and data protection requirements as for data received under domestic law. Thus, and in accordance with the speciality principle, the Reportable Financial Information shall only be transmitted and disclosed to state authorities in charge of the assessing, collecting, enforcing and prosecuting of taxes falling under the Automatic Exchange of Information (AIA) . Exceptions may apply in cases of money laundering, corruption and terrorist funding.
Implications of the AIA on the Banking Secrecy on international and national level
- International level: Federal Tax Administration (FTA) will receive financial account related information, including, banks, insurance and trusts from other Automatic Exchange of Information (AIA) contracting states. FTA is entitled to forward this information to Cantonal tax authorities and it is expected that Federal, Cantonal and local authorities will make use of such information. Inversely, financial account related information of foreign taxpayers, e.g. banking in Switzerland will be reported to the country of residence provided that such country is an Automatic Exchange of Information (AIA) contracting state. (see: https://www.sif.admin.ch/sif/de/home/themen/informationsaustausch/automatischer-informationsaustausch/automatischer-informationsaustausch1/publikationen.html)
- A national level: The national banking secrecy regarding financial information on Swiss bank accounts of taxpayers in Switzerland will not be affected by the Automatic Exchange of Information (AIA) .
Recommandations to Taxplayers and Swiss Reporting Financial Institutions
- Taxpayers resident in Switzerland with assets in an AIA contracting state will face inquiries from Reporting Financial Institutions and shall be informed about the transmission of their financial account information to Switzerland. At a later stage they might get requests form the FTA concerning their (non-declared?) foreign financial assets. Thus, it is highly recommended that they assess their tax situation and declare these assets in order to ensure the option of a non-punishable voluntary disclosure.
- Taxpayers in an Automatic Exchange of Information (AIA) contracting state having a Swiss bank account will receive enquiries from Swiss Reporting Financial Institutions. It is highly recommended that they start assessing their tax situation before their bank information will be transmitted to their country of residence/domicile from 1 January 2018 onwards.
- Swiss Reporting Financial Institutions will be subject to a vast range of duties entailing considerable effort. At the latest by 30 June 2018, they will have to make their first reporting to the FTA. It is therefore recommended to start preparing for this upcoming challenge and to inform their clients accordingly.
The Automatic Exchange of Information (AIA) and the US Foreign Account Tax Compliance Act (FATCA)
The US Foreign Account Tax Compliance Act (FATCA) and Automatic Exchange of Information (AIA) follow two separate streams. Under FATCA, Swiss financial institutions directly report the requested information to the US tax authorities whereas under the Automatic Exchange of Information (AIA) such reporting is made towards the SFA. Furthermore, FATCA only provides for a transmission of data to the US – Switzerland does not receive any data from the US. The US are not a contracting AIA state. Consequently, the regime under FATCA will continue to be applied between Switzerland and the US.
The protection of the right to privacy as well as the protection of personal data as set out in article 8 of the EU Charter on Fundamental Rights are both concerns for the European External Action Service (EEAS) as a European public administration. Switzerland signed up to this Charter, but has its own Data Protection law.
The EEAS respects the 7 principles for personal data processing set out in the EU Directive 95/46/EC and in the EU Regulation 45/2001:
- Notice – people whose data are being collected, processed and kept should be informed
- Purpose – data collected should be used only for the stated purpose(s) and for no other purpose
- Consent – personal data should not be disclosed or shared with third parties without the consent of the person concerned
- Security – once collected, personal data should be kept safe and secure from potential abuse, theft, or loss
- Disclosure – people whose personal data are being collected should be told which party or parties are doing so
- Access – people should be granted access to their personal data and allowed to correct any inaccuracies
- Accountability – people should be able to hold personal data collectors accountable for following all these principles.
Source: SIF, OECD, Pestalozzilaw and NZZ 27.12.2016 (amended extensively)