‘How much money?’ asked the customs officer at the Italian border in mid-December 2020. An unexpected question, as the coronavirus self-declaration form was there ready to show customs. ‘No money!’ came the prompt, somewhat dismayed answer – the Covid pass remained in the glove compartment.
This is exactly how the situation played out, suggesting that 2020 put tax matters high on the agenda once again. The following three points serve to illustrate this.
Amendments to the AEOI Act (AEOIA) and the AEOI Ordinance (AEOIO) came into force on 1 January 2021
This occurred according to schedule despite the coronavirus situation. Proposed amendments to the AEOIA and AEOIO, covering international automatic exchange of information in tax matters, came into force on 1 January 2021. The Swiss Parliament had already endorsed the amendments to the AEOI Act in June, and the Swiss Federal Council followed suit in November with the amendment to the Ordinance.
The AEOIA amendments include the repeal of the exemption for condominium owners’ associations and adjustments to the applicable due diligence obligations. In addition, amounts are now reported only in US dollars and a document retention requirement was introduced for reporting Swiss financial institutions.
The AEOIO will be amended accordingly and includes the following key changes:
- Article 7 will be repealed: As the Global Forum recommended, condominium owners’ associations and collective ownership associations qualify in each case as non-financial entities (NFE), rather than potentially as non-reporting financial institutions as before.
- Article 15 will be repealed: Accounts that qualified as excluded accounts in the client’s country of tax residence were also allowed to be treated as such in Switzerland. Reporting Swiss financial institutions are now obliged to check the reporting obligation of accounts affected by this exemption.
- Article 27 will be repealed: Previously, a valid tax identification number (TIN) was not considered an essential condition for opening a new account. It is now compulsory to obtain one if a member state issues it. Article 35a states that for accounts with no TIN, financial institutions are granted a certain transitional period to obtain one.
Affected financial institutions will need to make minor adjustments to their processes and workflows.
10 year ‘minor’ Swiss tax amnesty – was it a success?
Switzerland implemented the so-called ‘minor’ tax amnesty in January 2010. The amnesty provides a one-time incentive for disclosing hidden assets and income without incurring fines or criminal sanction. However, any evaded tax must be paid, including interest.
More than ten years after the introduction of the programme, a series of conclusions were drawn in 2020. By the end of August 2020, the Swiss Federal Tax Administration (FTA) had recorded a total of 103,350 notifications of ‘post-tax proceedings due to voluntary declarations’, which were submitted by the cantons. Around CHF 4.5 billion in additional tax revenue has been reported by the cantons to date.
Most of the notifications were made after 2017, when the AEOI came into force. However, the AEOI was not the only motivator for voluntary disclosure. Although assets within Switzerland are still subject to Swiss banking secrecy, there was also an increase in disclosures within Switzerland; whether this apparent paradigm shift towards tax honesty will withstand the coronavirus crisis remains to be seen.
So how will the introduction of the AEOI impact impunity-free voluntary disclosure? The FTA assumes knowledge of tax factors that are subject to AEOI by 30 September 2018 at the latest, which means that taxpayers would no longer be disclosing this information of their own volition. It is therefore the opinion of the FTA that voluntary disclosure with impunity is effectively no longer possible after this date. (In the case of tax matters from countries that commit to the AEOI at a later date, this applies analogously to 30 September of the year in which the relevant exchange of information takes place (for the first time).) However, it is ultimately up to the respective cantonal tax administration to decide whether a voluntary disclosure meets the legal requirements.
FATCA group requests on the rise
In ‘gwp Monthly – January 2020’, we reported that the legal foundations that enabled the Swiss tax authorities to respond to FATCA group requests from the US were laid in 2019. In accordance with the FATCA agreement, the US tax authority IRS can request information via FTA on any accounts that have been reported to it on an aggregated basis by Swiss financial institutions.
The IRS is getting serious now. As at 1 December 2020, notifications were issued to thirteen named banks on the Swiss FTA website informing them of specific FATCA group requests from the US. The specified US persons and non-participating financial institutions affected by administrative assistance requests, as well as any other contracting parties to the affected account relationships, will be informed without being named by way of a notice in the Federal Gazette and on the Swiss FTA’s website that (a) a group request has been received, (b) a final ruling will be issued for each account relationship affected by the group request, and (c) persons who are entitled to appeal may submit their comments on the intended transfer of their data to the IRS within 20 days of this notice.
To summarise the situation in 2020, the general uncertainty caused by the pandemic has had little impact on matters relating to international tax – and is unlikely to do so in the future.