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Switzerland: Double Tax Treaties

Other International Agreements

This page was last updated on 9 April 2021.

Following the publication of the Administrative Assistance Ordinance in 2010 which sets out when Switzerland will cooperate with other countries, the Swiss government published the Act on International Assistance in Tax Matters. The Act is based on the principle that administrative assistance will be provided upon request in individual and group cases. No administrative assistance will be provided by Switzerland if a request is based on information which was acquired by acts which are punishable under Swiss law. Information transmitted abroad is only allowed to be used to enforce Swiss tax law, in so far as it could have been obtained in accordance with Swiss law.
Switzerland is also a party to a number of international mutual assistance treaties, some multilateral and some bilateral, including the following:

  • The European Convention on Mutual Assistance in Criminal Matters, 1959;
  • Treaty on Mutual Assistance in Criminal Matters with the USA, 1973;
  • The Federal Act on International Mutual Assistance in Criminal Matters, 1983, as amended in 1997;
  • The European Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime, 1993.

The Federal Act, particularly since the 1997 amendments, enables the transmission of documents and information abroad for the purposes of criminal proceedings. From the point of view of banking secrecy the following can be said about the current According to a recent decision of the Federal Supreme Court the transmission of such information requires the permission of the Swiss police authorities who must inform the customer about the order and give him a right to appeal;

It is not permitted to forward information on persons who are not the subject matter of the investigation;
Information will not be given if

  • The foreign authorities might use the information for purposes other than those for which it was requested;
  • The offence alleged is not equally punishable in Switzerland;
  • The requesting state does not offer Switzerland reciprocal treatment in these matters;

The offence is related to tax, politics or military matters.
The Swiss authorities now grant administrative assistance as well as judicial assistance. Administrative assistance is regulator to regulator contact as opposed to judicial assistance which takes place between judicial authorities within the scope of civil or criminal legal proceedings.
The Swiss Federal Banking Commission which regulates banks, mutual funds, stock exchanges and security dealers is the regulator charged with rendering administrative assistance. A number of conditions attach to the granting of administrative assistance by the Swiss Federal Banking Commission namely:

  • The foreign authority must be recognized by the Commission as a supervisory authority authorized to request administrative assistance;
  • The foreign authority may only use the information for the purposes of direct supervision of the institution concerned;
  • The foreign authority must be bound by official or professional secrecy;
  • The foreign body can only re-transmit the information under very restrictive circumstances. This is called the principle of specificity and means that information that was given for the purposes of a criminal offence such as drug dealing cannot be used in proceedings for tax evasion. In practice the foreign authority must confirm that it will not so transmit the information unless required to do so by a competent court against whose decision it will appeal. Since the grant of assistance by the commission is discretionary if specificity cannot or was not guaranteed future assistance may be denied though in practice the commission is always eager to be seeing to play its part;
  • If the information requested gives the name of a client he must be notified and given time to contest the decision;
  • There is a right of appeal to the Federal Supreme Court.

In 2001 the European Union began negotiations with Switzerland to attempt to gain agreement to the information-sharing required as part of the EU's withholding tax directive and without which it will not be effective.

Switzerland was politely helpful, offering to extend its 35% withholding tax on resident savings income to non-resident account holders, and to distribute much of the tax collected among EU member states, but the government was adamant that it will not shift on the issue of banking secrecy. The Finance Minister, Kaspar Villiger confirmed this, commenting frequently that: 'Banking secrecy is not negotiable'.

Jean-Baptiste Zufferey, a Swiss tax expert and professor at the University of Fribourg expressed the situation more bluntly: 'It's not because we fear banks would lose business, but most Swiss people have an attachment to the idea that a human being is entitled to financial privacy. It is the problem of foreign countries if they cannot tax their citizens. We in Switzerland don't have to help other countries do their job.'

This posed a serious problem for the EU - not just because the alpine jurisdiction is home to an estimated one third of the world's offshore wealth, but because other countries, in particular Luxembourg and Austria, had said that they would refuse to back information exchange plans if Switzerland does not participate. The EU had set the end of 2002 as the deadline for final adoption of its information exchange plans, but Luxembourg's refusal to accept the Swiss compromise position as acceptable meant that negotiations continued into 2003. After last-minute haggling by Italy and Belgium, it was agreed by mid-2003 that the Directive would enter into force in 2005.

Vietnamese Deputy Prime Minister Nguyen Thien Nhan and Swiss Vice President and Minister of Economics Loris Leuthard met on 29 January 2009, to discuss the possibility of a free trade agreement between their respective countries.

Leuthard asked Vietnam to consider the possibility of a free trade agreement with the European Free Trade Area which consists of Switzerland, Norway, Iceland and Lichtenstein, also proposing an air route between Switzerland and Vietnam to further boost investment and tourist cooperation between the two countries.

A visit by the Tajik Foreign Minister, Hamrokhon Zarifi, in March 2011, included talks with the Swiss President Micheline Calmy-Rey on the development of political and economic cooperation.

On 24 February 2009, the European Council Secretariat published provisional details of an anti-fraud agreement between European Union Member States and Switzerland.

The anti-fraud agreement's aim is to counter fraud and other illegal activities affecting the financial interests of both the EU and Switzerland. It contains provisions relating to administrative assistance and to mutual legal assistance in criminal matters for the protection of financial interests. Within the scope of the agreement are indirect tax (VAT and excise duties) and customs offences (including smuggling), corruption and money laundering. Direct taxation is excluded from the scope of the agreement.

A press release by the EU council on 15 February 2011, announced that an initial debate had taken place on a draft decision which authorises the Commission to negotiate a new anti-fraud agreement with Switzerland. A draft agreement with Liechtenstein which "provides for cooperation between parties through the exchange of information that is foreseeably relevant to tax administrations. It allows the parties to trigger administrative assistance that cannot be refused on the sole grounds that the information is held by a bank or other financial institution, and legal assistance for acts that are punishable under the laws of the parties", is planned to serve as the model for the new negotiations.

In early 2012, the Swiss Federal Administration made clear the view held that the existing anti-fraud agreement provides for the necessary assistance on indirect taxes. It went further by saying that Switzerland prefers to deal with direct taxes through the appropriate double tax agreements.

In September 2011, following purchases of stolen account details by various German tax authorities, Switzerland and Germany signed a tax agreement that would impose one-off withholding tax on interest earned in previous years by German resident account holders. Rates for past taxation were originally set at between 19% and 34% but were increased to between 21% and 41% by a supplementary agreement signed in April, 2012, in line with demands from Germany's opposition parties. German account holders are given the option of voluntary disclosure by giving the Swiss bank written authorisation to disclose their details to the German tax authorities. In this instance, no withholding tax will be applied by the bank. The German account holder also has the option of remaining anonymous, in which case the bank will apply the appropriate withholding tax and forward this to the German tax authority.

The agreement was expected to come into effect on 1 January 2013, however, strong opposition to the agreement meant that it did not pass its final legislative hurdle in Germany.

In October 2011, Switzerland and the UK signed a Taxation Cooperation Agreement which took effect from 1 January 2013. Rates of tax applied to interest earned in undeclared Swiss bank accounts range from 21% to a maximum 41%, depending on the asset value. The agreement provides for either voluntary disclosure by UK resident account holders or non-disclosure, in which case a one-off payment is due to settle outstanding UK tax on Swiss bank accounts.

A similar agreement was signed with Austria in April 2012. Interest earned in past years will be taxed at between 15% and 38% depending on the length the account has been held and the value of assets. Future interest will be subject to a 25% tax. The agreement came into effect on 1 January 2013.

 

 

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