Automatic Exchange of Information from a Swiss perspective

By Christoph Niederer and Fiona Gao Yue, VISCHER
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Chinese and Hong Kong-controlled Swiss companies, as well as many Hong Kong or mainland China residents – directly or indirectly through companies domiciled in offshore jurisdictions – hold accounts or deposits with Swiss banks. This article answers whether the relevant bank account data may become the subject of the Automatic Exchange of Information in Tax Matters (AEoI) pursued by the Organisation for Economic Co-operation and Development (OECD).

Christoph_Niederer_2
Christoph Niederer 菲谢尔律师事务所 合伙人、税务业务负责人 Partner, Head of Tax VISCHER

Background

In October 2014, 96 jurisdictions, including mainland China and Hong Kong, committed to implement the Standard for Automatic Exchange of Information in Tax Matters (AEoI Standard) as developed and released by the OECD Council on 15 July 2014. Of those 96, 56 plan to start exchanging bank account information from 2017, which means they will start collecting the respective data in 2016, and 40 – including mainland China, Hong Kong and Switzerland – committed to collect and share such information from 2018.

How it works

With countries other than the EU member states, Switzerland will exchange bank account information based on: (a) the Multilateral Competent Authority Agreement (MCAA), which is the legal framework for the implementation of the AEoI Standard; and (b) a bilateral treaty with each particular country with which information is to be exchanged. In other words, bank account information will only be exchanged between two OECD countries if they also signed and put into force a bilateral treaty adopting the AEoI Standard between them (the AEoI Bilateral Treaty Partners).

高悦 Fiona Gao Yue 菲谢尔律师事务所 中国业务团队律师 Associate China Desk VISCHER
高悦
Fiona Gao Yue
菲谢尔律师事务所
中国业务团队律师
Associate
China Desk
VISCHER

Therefore, although the multilateral AEoI Standard and MCAA will be effective in Switzerland from 2017, Switzerland will only apply the AEoI Standard with respect to its AEoI Bilateral Treaty Partners, and so far there is only one – Australia, allowing the exchange of bank account information between Switzerland and Australia from 2018.

Accordingly, although Switzerland, China and Hong Kong committed to exchange bank account information from 2018 on, this will only happen if prior to 2018 China and Hong Kong, respectively, become AEoI Bilateral Treaty Partners of Switzerland. Currently we have no information about any negotiations on such treaties.

The automatic exchange of information (AEoI) should, however, not be mixed up with the exchange of information upon request within a formal administrative assistance procedure. According to the double taxation treaties in force between Switzerland and China, and Switzerland and Hong Kong, respectively, each country is entitled to request the disclosure of particular information, including information on bank accounts of a specific taxpayer or group of taxpayers, if certain conditions are met.

Swiss conditions for AEoI Bilateral Treaty Partners. The Swiss government requires, among other conditions, that its AEoI Bilateral Treaty Partner allows its taxpayers to declare their assets held offshore without imposing dramatically high penalties on them.

Reporting requirements

Which accounts will be subject to AEoI?

According to the AEoI Standard, any bank account or other account held with a financial institution in an AEoI Bilateral Treaty Partner, by either an individual or a company domiciled in the other AEoI Bilateral Treaty Partner, will be subject to exchange of information. If more than one person holds an account, all account holders, irrespective of the percentage of their share, will be reported to the extent resident in the relevant AEoI Bilateral Treaty Partner. In addition, any account held by a “non-active” – i.e. letter box or domiciliary – entity in which a person resident in the relevant AEoI Bilateral Treaty Partner has a stake of at least 25%, will be reported.

Accordingly, the Swiss bank account of a British Virgin Islands domiciliary company owned by a person resident in China would be subject to reporting if China becomes an AEoI Bilateral Treaty Partner of Switzerland.

What type of account information will be reported?

According to the AEoI Standard, the account number, the tax ID number of the account holder or the person in control of the account holder, the name and address, amounts of interest and dividend income received, payments made by certain insurance policies, account balance and proceeds from the sale of securities will be reported annually in a standardized format. Although only time will show how the information of hundreds of thousands of electronically processed pieces of information will be used by receiving AEoI Bilateral Treaty Partners, it will certainly have a deterrent effect on potential tax evaders.

Who will have to report?

Any financial entity with legal domicile in an AEoI Bilateral Treaty Partner, i.e. banks, insurance companies for certain products, custodians, independent asset managers and also trusts, will have to report the respective account information to the relevant other AEoI Bilateral Treaty Partner.

As far as trusts are concerned, it is sufficient that the settlor, a trustee or a protector is resident in an AEoI Bilateral Treaty Partner. This might lead to multiple reporting of the same account.

Summary

The pure commitment of an OECD country to participate in the global exchange of information is a necessary, but not sufficient, condition to exchange bank account data with other OECD countries, as the exchanging countries must on top be AEoI Bilateral Treaty Partners, which is not yet the case among Switzerland, China and Hong Kong, respectively.

However, since other countries such as the British Virgin Islands, have committed to transfer information already in 2017 – and collect the respective content in 2016 – it will be important to monitor any negotiations with these countries in cases of offshore structures.

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