Global Tax Alert | 9 August 2013

Swiss Federal Supreme Court upholds tax information exchange with US

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Group requests are permitted under the 1996 Double Taxation Agreement with the United States, provided the facts are described with sufficient detail so as to provide acceptable grounds for suspicion of fraud and the like and to enable the identification of the taxpayers involved.

After having received a request for administrative assistance from the United States tax authorities, the Swiss Federal Tax Administration decided in November 2012 to transfer the bank records of a US resident, who was the beneficial owner of a non-US company holding an account with Credit Suisse. An appeal raised against this decision by the account holder was rejected by the Swiss Federal Administrative Court (Administrative Court) on 13 March 2013.

On 5 July 2013, the Swiss Federal Supreme Court (Supreme Court) rejected the appeal against the decision of the Administrative Court. A press release of the Supreme Court explained that the Administrative Court held that requests for administrative assistance in relation with fraud and the like are in principle admissible under the 1996 Double Taxation Agreement with the United States, regardless of whether the suspicion falls on one or more persons and whether the said persons have explicitly been named in the request. The contents of the Double Taxation Agreement had to be assessed, as it does not contain an express provision concerning the minimum content of a request for administrative assistance. According to the press release, the Swiss Federal Supreme Court considered that the mere absence of indications relating to the identity of the persons involved did not constitute an inadmissible fishing expedition, provided that the request for administrative assistance fulfills the strict requirements concerning the degree of detail in the description of the facts.

To come to its decision, the Supreme Court had to assess the actual facts presented by the United States tax authorities.

The Supreme Court found that the method chosen by the bank’s client – essentially employing a non-US domiciliary company, which was not subject to United States taxes – was described in a sufficiently detailed way to render the presence of tax fraud plausible and, thus, to grant administrative assistance. Not only would the use of the non-US domiciliary company help avoid US income taxes otherwise owed by the US beneficial owner of the domiciliary company, but it would also frustrate US fiscal procedures put in place to ensure collection and payment of the tax.

Comment

Whether the judgment of the Supreme Court will lead to more legal certainty in the field of data disclosure cannot be assessed at the present time as the court’s decision and its considerations have yet to be published. However, it is now clear that under the Double Taxation Agreement with the United States it is appropriate to lodge group requests within the limits of administrative assistance. Provided the requirements are met, the requisite bank records and documents can be disclosed to the United States tax authorities under the Double Taxation Agreement.

Once the court decision has been published by the Supreme Court, we plan to issue an additional Alert on this matter.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Ltd., Zurich
  • Hans-Joachim Jaeger
    +41 58 286 3158
    hans-joachim.jaeger@ch.ey.com
  • Thomas Weber
    +41 58 286 4053
    thomas.weber@ch.ey.com

EYG no. CM3725