New Swiss tax data exchange deals raise red flags

A demonstrator is detained by police during a protest rally in Moscow earlier this year. Keystone / EPA / Maxim Shipenkov

The automatic exchange of tax information (AIE) between countries is generally seen as an effective way of cracking down on tax cheats. But what if a country uses the data to politically oppress its citizens? It’s a burning issue facing Swiss lawmakers.

This week, Swiss parliament will begin a debate on whether to extend tax data exchange treaties to a second batch of countries and tax havens. Switzerland already has 38 deals in placeExternal link, including with European Union members. But the latest clutch of 41 deals, which need to be ratified by parliament, contains states with dubious democratic credentials, such as China, Russia and Saudi Arabia. 

Civil rights groups and Swiss banks are hoping to sway political decisions from the sidelines. On one side of the argument are fears that Switzerland is trying to wriggle out of its anti-tax evasion obligations via the back door. On the other side, there is alarm that data harvested from bank clients may be abused.

Some politicians are concerned that by sharing data with them, Switzerland could be feeding “corrupt” states with the information they need to attack political enemies. The rightwing Swiss People’s Party has demanded that deals be made only with countries that reach a minimum score on Transparency International’s Corruption Perceptions Index.External link

The People’s Party went so far as to issue red flags against Argentina, India, Brazil, Russia, Saudi Arabia, China, the United Arab Emirates, South Africa, Indonesia, Mexico and Colombia.

Both the Swiss Bankers Association (SBA) and its private banking counterpart have also expressed alarm. SBA CEO Claude-Alain Margelisch wants strict policing of the treaties.

“It is important that this control be undertaken very carefully on a practical, case-by-case basis according to clear criteria, and that the exchange of information be suspended if there is reason to suspect improper application,” he said earlier this month.

NGOs want more agreements

Meanwhile, NGOs, such as Tax Justice Network (TJN) and Public Eye, are adamant that Switzerland should go ahead with all the treaties – and then move on to other countries. For a start, Switzerland has signed up to the automatic exchange of tax data process engineered by the Organisation for Economic Development and Cooperation (OECD).

The Swiss government has negotiated all the deals currently on the table and recommends that parliament give its approval. To back out now, argue the NGOs, would send a signal that Switzerland is not serious about tackling tax evasion and cannot keep its promises.

Olivier Longchamp of Public Eye recognises that there are legitimate concerns about the governance of some countries, such as Russia. “But it would be wrong for Switzerland to unilaterally decide against signing treaties because other countries don’t meet Swiss standards,” he said.

Policing the proper implementation of treaties should be left to the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes, Longchamp argues. The Global Forum, comprised of representatives from OECD member states including Switzerland, has already laid the groundwork by assessing whether countries have the required laws and infrastructure to automatically exchange tax data.

Level playing field?

Longchamp is also concerned that Switzerland is fast-tracking powerful economies and has so far excluded developing nations most in need of tax revenues. “We can’t have two classes of country based on economic considerations,” he said. “AIE is still of no use to the poorest countries in the world.”

Earlier this month, an influential Swiss parliamentary economics committee recommended that politicians pass the new AIE treaties – all except New Zealand’s, on the grounds that the country’s tax regulations might unfairly penalise Swiss retirees living there who have not declared their Swiss pensions.

But the committee also recommended two conditions for approving the tax treaties. The first is that the Swiss government must clarify its own assessment on whether countries have sufficient data and human rights protections in place before the treaties are implemented in 2019. The second is that treaties should only be signed with countries that already have similar deals with competing financial centres, such as Britain and Germany.

This cuts no ice with the Tax Justice Network, which says Switzerland is already way behind other countries in implementing AIE. Failing to implement any of the latest batch of treaties would “show that Switzerland is not interested in full transparency or the problem of black money”, TJN’s Andres Knobel told swissinfo.ch.

Swiss AIE treaties

Having ratified the OECD’s “Multilateral Convention on Mutual Administrative Assistance in Tax Matters” in 2016, Switzerland has already started agreeing to automatically exchange tax information with other countries.

This means that Swiss banks will pass the details of foreign clients to the Swiss tax office, which will then pass this data on to countries it has signed an AIE treaty with.

Deals with a first batch of 38 countries are already in place. Banks started collecting the data from the start of this year, which will be released to recipient countries from January 1, 2018. Switzerland will receive data of Swiss citizens with bank accounts in those countries.

A second batch of 41 countries was approved by the government earlier this year. If passed, data will be collated in 2018 and transmitted to the recipient countries in 2019.