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Automatic exchange of information: a new standard

Christa Tobler explains how Switzerland agreed to a decisive revision of the EU-Swiss agreement on the taxation of savings.
In this step, I would like to tell you how international pressure on Swiss banking secrecy has made Switzerland change its rules as far as its relations with other countries are concerned. Particularly important actors in this context were the United States of America, the OECD, and the EU. I will address them in turn. Let me therefore begin with some remarks on the US. Pressure first came from here. In fact, the US authorities contacted Swiss banks, giving them the possibility until the end of the year 2013 to seek so-called non-prosecution agreements if they, the banks, had reason to believe that they violated US tax laws.
The participating banks were asked to disclose how they helped Americans hide assets, to hand over data on undeclared accounts, and to pay penalties. Earlier in the same year, Switzerland and the US concluded the so-called FATCA agreement on the exchange of information. The agreement has been in force since the 30th of June 2014. FATCA stands for a US piece of legislation, namely the Foreign Account Tax Compliance Act, which targets tax noncompliance by US taxpayers with foreign accounts, for example in Switzerland. If you are interested in more details, you can find it on the website of the US federal administration for further reading. So why is this relevant for other countries?
The website of the federal administration explains: ‘With the enactment of the Foreign Account Tax Compliance Act (FATCA) the United States wishes to ensure that all accounts held abroad by US taxpayers can actually be taxed. FATCA is a unilateral set of US regulations that applies worldwide. It requires foreign financial institutions to disclose information on US accounts to the Internal Revenue Service or levy a high tax. The administrative and financial burden associated with the implementation of FATCA is considerable for foreign financial institutions. This burden will be reduced by the Swiss-US FATCA agreement, as it makes provision for reductions in the administrative burden for Swiss financial institutions.’
In essence, the Swiss-US FATCA agreement provides for an exchange of information insofar this agreement also implies that Swiss banking secrecy no longer applies in relation to one specific politically and economically very powerful country, namely the US. Let us now turn to the international level of the OECD and the new global standard on the Automatic Exchange of Information, or AEOI, approved in 2014. The OECD has published a video on its website which we strongly recommend to you. You find the link further on in this step. Being an OECD member, Switzerland contributed actively to the development of this standard. Switzerland also plans to sign up to a multilateral convention on mutual administrative assistance in tax matters.
This convention was jointly developed by the OECD and the Council of Europe. The latter is a large European, not EU, organisation best known for its human rights convention. Switzerland is a member. These international developments also had consequences on the regional level, namely for the EU and for its legal relationship to Switzerland. Inside the European Union, legislation on the taxation of savings was changed in order to fully include the new AEOY standard. The relevant EU law, Directive 2014/107, amends an earlier directive on administrative cooperation in the field of taxation, namely Directive 2011/16. We have provided further material in the related links on this step.
As for the EU-Swiss relationship, the parties agreed to revise the bilateral agreement on the taxation of savings and to call it, from now on, agreement between the European Union and the Swiss confederation on the automatic exchange of financial account information to improve international tax compliance. The new agreement was signed in May 2015 and hailed by the European Commission as a historic tax transparency agreement.
The Commission stated in its press release: ‘Today, the EU and Switzerland signed a historic new tax transparency agreement, which will significantly improve the fight against tax evasion. Under the agreement, both sides will automatically exchange information on the financial accounts of each other’s residents from 2018. This spells an end to Swiss bank secrecy for EU residents and will prevent tax evaders from hiding undeclared income in Swiss accounts.’ As a result of these international developments, Swiss banking secrecy with respect to information for income tax purposes has been, or will be, abandoned with respect for those countries who participate in the various initiatives that I have mentioned in this step, but not inside Switzerland, where banking secrecy continues to exist.
However, not everybody is happy about such international developments and their consequences for Switzerland. In our next step, we will learn about a popular initiative in Switzerland that wants to rescue Swiss banking secrecy. As you now have heard, banking secrecy in Switzerland has changed quite dramatically during the last five years. On a more general level, we would like you to reflect on the force of international influence in a matter such as banking secrecy, which did not exist in Switzerland alone. What do you think of the interplay of these forces? Please share your thoughts in the comments section.

The Swiss example shows that international tax standards may lead to changes in the national law.

Over time, Swiss banking secrecy came under increasing international pressure, first from the United States of America and subsequently from the Organisation for Economic Co-operation and Development (OECD) and from the European Union (EU). Switzerland and the US concluded the so-called FATCA Agreement. Following the development of a new OECD tax standard, Switzerland also agreed to a decisive revision of the Swiss–EU agreement on the taxation of savings.

Please be aware that the weblinks in the video are indicated as copyright information as they were during the first run, but the URLs might have changed in the meanwhile. Current weblinks can be found below in the ‘see also’ section.

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