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Swiss Bankers Criticize Key Tax Bills

by Ulrika Lomas,, Brussels

02 October 2013

The Swiss Private Bankers Association (SPBA) has voiced its criticism of draft tax legislation that the Swiss Federal Council has recently submitted for consultation, containing provisions that are of vital importance for the financial center.

In its latest communiqué, the SPBA set out its concerns regarding certain provisions included in the Federal Council's bill providing for a reform of the Confederation's criminal tax law. While supporting the overarching aim of the legislation, namely to coordinate, standardize, and unify penalties and procedures across the tax system, to ensure legal certainty, the association nevertheless rejected the proposals.

The Federal Council maintains that the reform is designed to restore legal certainty in the criminal tax law guaranteeing that an individual is treated in the same way, irrespective of the procedure followed. Under existing legislation, requests for banking information may be sought during criminal tax procedures for indirect taxes, although not for direct taxes. The bill unifies the elements constituting an infraction and redefines tax fraud as a qualified form of tax evasion, to ensure that a double fine is not incurred for one or other infraction. The bill also provides that a serious tax offence is a crime, deemed a predicate for money laundering. A serious tax offence involves sums in excess of CHF600,000 (USD628,209).

The SPBA warned, however, that the provisions could be exploited and used to "massively" toughen penalties imposed following a tax offence, in particular for persons other than the taxpayer, namely banks and their employees. Furthermore, the group insisted that it is simply unacceptable to give the head of the cantonal tax administration concerned responsibility for access to new investigative and enforcement measures, including house searches and access to bank accounts, meaning that tax officials become judge and jury and thereby putting a further strain on relations between the citizen and the state. Finally, the SPBA underlined the need to re-examine the planned reform in the light of ongoing revisions currently being discussed and implemented at both international (for example the latest Financial Action Task Force recommendations) and national level (including deliberations on the statute of limitations in the criminal law).

The envisaged reform is not merely a matter of implementing technical changes limited to tax matters, but concerns modifications that could bring into question "fundamental aspects" of Switzerland's legal system, the SBA made clear.

The SBA also lamented the Federal Council's partial revision of the Tax Administrative Assistance Act (StAG), which provides for deferred notification of persons who are the subject of an administrative assistance request in certain cases and makes provision for a special procedure for notifying persons affected by a group request. The Federal Council recently initiated shortened consultation proceedings on the bill.

While acknowledging the need to revise the StAG law as swiftly as possible, as final grading of the Global Forum's peer review process is due to commence shortly, and as Switzerland must demonstrate that it has implemented the international standards in full, the SPBA nevertheless criticized the Federal Council for failing to act earlier. The Federal Council was already aware back in June 2011 that the text did not comply fully with the international standards, before the legislation was subsequently submitted to and adopted by the Federal Assembly last year, the SPBA emphasized.

According to the SPBA the revised text contains a number of highly controversial provisions. The first is the stipulation that affected taxpayers are only to be notified in urgent cases after information has been disclosed to the requesting state's authorities, for example when prior notification would compromise the investigation. This provision violates the constitutional principle of the right to be heard, the SPBA underlined. While highlighting the importance of complying with the international standard, the SPBA insisted that the exceptional nature of the measure must be maintained and that the Federal Council should avoid any broad interpretation that could lead to the exception becoming the rule. The association also stressed that the retroactive application of the legislative revision contravenes the basic principal of law.

Concluding, the SPBA challenged the Federal Council's assumption that it had the authority to amend the definition of group requests, arguing that such significant legislative modifications require the prior consent of parliament. The SPBA also refused to accept that requests for administrative assistance, based on the use of stolen data, will in future be processed, provided that the requesting state acquired the data passively, e.g. via another state and not actively. Switzerland would certainly not be alone if it decided not to accept the provision, the SPBA added, pointing out that other countries have already refused to comply and noting that the measure does not form part of the Global Forum's international standard.

TAGS: compliance | tax | tax compliance | tax avoidance | law | banking | employees | enforcement | legislation | Switzerland | standards | penalties | Financial Action Task Force (FATF) | Tax

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