On January 1, 2017 the legal basis for the introduction of the automatic exchange of information (AEOI) came into force. The AEOI standard provides that certain banks, collective investment schemes and insurance companies collect financial information from their clients if they are resident abroad for tax purposes. In relation to Switzerland, the AEOI currently applies to around 50 countries as well as the EU member states. The information includes all types of capital income as well as the balance of the account and is transmitted to the Federal Tax Administration (FTA), which forwards the data to the tax authority responsible for the client. This transparency is intended to prevent that tax substrate abroad can be hidden from the tax authorities.
The first data exchange will take place in autumn 2018, so a key question is what consequences the AEOI will have for Swiss tax resident individuals with undeclared assets abroad. As soon as a cantonal tax authority becomes aware of a previously undeclared account, it will open an supplementary tax and penal procedure. The consequences can be drastic:
- Levy of income and wealth tax for the past 10 years;
- late interest;
- a fine of up to three times the tax amount to be paid in arrears;
- potentially the opening of tax fraud proceedings with the sanction of a custodial sentence.
In Switzerland, it has been possible since 2010 to make a first and only non-punishable voluntary self-disclosure if
- the tax evasion is not known to any tax authorities;
- the taxable person supports the authority unconditionally in determining the post-tax; and
- seriously endeavours to pay the additional tax owed.
Up to what point is a non-punishable voluntary disclosure still possible?
With regard to the AEOI, knowledge of undeclared income and assets by the tax authorities is key. The FTA argues that this knowledge can be assumed as of 30 September 2018 and that it will therefore no longer be possible to make a non-punishable voluntary self-disclosure for tax factors subject to the AEOI from this date, since the disclosure is not made on own initiative.
The cantons (as the deciding assessment authorities) have different views in this respect. For example, the tax administration of the Canton of Schwyz, relies on the entry into force of the AEOI with the respective country. After that date, the voluntary disclosure could no longer be regarded as “made on own initiative”. The Zurich tax authorities are adhering to the effective discovery of evasion; the exchange of tax data is not yet regarded as “knowledge” of undeclared taxes. The tax administration of the Canton of Zug has followed the opinion of the FTA.
Whatever the practice of the cantonal tax authorities may be, the time for filing a voluntary self-disclosure expires and after September 30, 2018, a non-punishable voluntary self-disclosure will either no longer be possible or will only be possible with an increased risk.
Persons subject to Swiss tax who have untaxed assets abroad should therefore urgently investigate the measures regarding a non-punishable voluntary self-disclosure.
Reichlin Hess will be happy to assist you with questions regarding non-punishable voluntary self-disclosure in connection with the implementation of the AEOI.