Exchange of financial information between Switzerland and Russia
During many years, the Swiss banking secrecy protected the owners’ identity of a bank account opened in a bank located in a bank of this country. The secrecy was never absolute, as a foreign authority could (almost) always obtain financial information in order to investigate criminal matters. Nevertheless, as in Switzerland tax cheating was generally not considered as a crime, a foreign tax authority could almost never obtain financial information for the simple purpose of assessing a taxation. Besides, double taxations treaties (DTT) signed by Switzerland did not provide a legal provisions allowing administrative cooperation in order to exchange financial information for taxation.
The first DTT between Switzerland and USSR entered into force in 1988. This text was highly defective in that sense that it did not cover all the matters a normal DTT, based on the OECD model, would usually cover. The reason for this was the economical system then prevailing in USSR which prohibited normal economic ties between USSR and Switzerland. Therefore, this treaty clearly did not contain a provision regarding administrative cooperation, even for the sole purpose of applying the treaty.
This first attempt to regulate international tax matters according to the international standards was effected in 1998. A more robust convention based on the OECD model was agreed between the two countries. Nevertheless, although more matters were handled in this text than in the previous one, this new convention did not provide any formal basis for an administrative cooperation. Considering the banking secrecy, it was business as usual for Switzerland.
Ten years later, the world had changed and Switzerland, in order to comply with the insistent requests of various countries claiming to be its friends, lifted the banking secrecy for non-residents. The internal rules defining the banking secrecy were not modified by the Swiss Parliament. But Switzerland agreed to provide to foreign administrations financial information as long as its obligation was anchored in a DTT. Russia and Switzerland agreed to modify the 1998 DTT by adding a provision allowing a full cooperation in tax matters. Since 2011, it is possible for the Russian tax administration to obtain through the Swiss tax administration some information on bank accounts in Switzerland as long as there is a relationship with the DTT. The main purpose of the text is to allow the Russian administration to debunk Russian tax payers maintaining an account in a Swiss bank. I do not know whether Russia already used this facility in order to request information, but a quick look at the published jurisprudence of the Swiss Administrative Federal Court shows no decision rendered until now regarding Russia. According to press releases, more than 66’000 requests were sent to Switzerland in 2016 from foreign countries, but the Swiss tax administration does not release break downs by countries.
The system now in force allows the Russian administration to obtain information at the request. This implies that if Russia wants some financial information on a specific (Russian) tax payer, its administration must draft a request to the Swiss authorities containing legally requested information in order to validate the request. This information includes (i) the identity of the person aimed by the request, (ii) the tax period on which information is requested, (iii) a short description of the kind of information to be collected, (iv) the reason for such a request and (v) where and from whom the piece of information has to be collected. These formal requirements are necessary in order to prohibit a “fishing expedition” by the requesting country in the financial waters of the other country. The information can be collected in order to assess taxations on incomes or wealth, but information on VAT is also permitted. At certain conditions, information provided for tax purposes can also be used in a criminal procedure.
The next step in the kowtowing process of Switzerland towards the mighty international organizations ruling the world is the automatic exchange of information. This process is already working mainly with EU countries: data are collected in 2017 and will be disclosed on January 2018. Russia requested to exchange data with Switzerland on the same basis. The Swiss Parliament received a draft law in order to allow exchanging in 2019 with Russia financial data collected in 2018. Automatic exchange between Switzerland and Russian depends now on a decision by the Swiss Parliament and on a further examination of the Russian legal rules regarding protection of data privacy.