Automatic exchange of information: anticipatory Switzerland

by Pierre-Gabriel Bieri

The Federal Council wants to quickly conclude with as many countries as possible agreements for the automatic exchange of information (AEOI). This haste is unnecessary – it is more important that all financial centers simultaneously apply the same rules. These agreements must also serve to negotiate and get compensation.

An acknowledged principle, difficult to implement

After the decision of the Federal Council to abolish the banking secrecy and to adopt international standards for the exchange of tax information, the Parliament approved this new principle, by having signed the multilateral agreement on the automatic exchange of information from financial accounts (Multilateral Competent Authority Agreement, MCAA). This agreement defines a certain number of technical standards. The Federal Act on international automatic exchange of information in tax matters (AIAG) transferred these new standards into Swiss law. But the concrete modalities, the timetable for conversion into Swiss law and the choice of countries, with which Switzerland is to maintain an exchange of information, still raise sensitive issues.
Fears for excessive zeal of the federal government in this matter were loudly made known, but seem to have hardly borne fruit. After having initiated an AEOI with Australia as the first country, the Federal Council now proposes to conclude further AEOI with Guernsey, Jersey, Isle of Man, Iceland, Norway, Canada, Korea and Japan.
Switzerland must ensure that the rules for all are the same. It must not be that the Swiss banks that have invested much time and money to provide in 2018 the tax data of the year 2017 are at the end of the day the only ones that provide data. Most other countries have called on longer transitional periods. In plaintext this means that AEOI may only be concluded when two conditions are met: absolute and effective reciprocity and simultaneous, identical application of the rules of all major financial centers (in particular London, New York, Singapore and Hong Kong).

Same rules for all

The guarantee of reciprocity propounded  by the Federal Council is insufficient. On one hand, we know that this reciprocity is not guaranteed in the case of the agreement FATCA with the US. On the other hand, an exchange of information – even if it is mutually – can cause a weakening of the competitiveness of Swiss banks, if the concerning State does at the same moment not maintain the same exchange of information with other financial centers as well. Such a guarantee is not yet in sight.
The will, to conclude as soon as possible several agreements, stemmed from the concern that Switzerland wanted to present itself as a “model student” when it was tested in mid-June of their “classmates”. This excess of zeal is misplaced. Not proved is, for example, that the States that are eligible for an agreement actually fulfill the conditions, which has set the Federal Council itself. Consider, for example, of the possibilities of tax regularization. Thereto can be stated that these countries indeed have regular economic and political relations with Switzerland, but the Federal Council did not negotiate anything in exchange for the signing of the agreement, such as better market access for Switzerland. In the same direction goes the demand that from time to time the quality and usefulness of the data supplied by the individual States must be questioned.

Immature agreement

The Federal Council argues that speedy negotiations are necessary to compensate for the delays of the federal democracy. This argument is incorrect: Many countries are lagging behind and by lone major financial markets are not even known the intentions. Compliance with the same rules of the game must be conditio sine qua non for a commitment from Switzerland. The transparency in tax matters must not be used as a pretext to weaken the financial center Switzerland.
Under these circumstances it is advisable to suspend the signing of the initialed agreements until reliable guarantees and counter services are available.     •

Source: www.centrepatronal.ch, Press and Information Service No 2182 from 8.6.2016

(Translation Current Concerns)