Tax information exchange remains at the top of the agenda, with jurisdictions increasingly having their banking secrecy practices prised open by revenue-hungry governments. But in Switzerland at least, the issue remains contentious and political dissent could mean a rocky road is ahead.

During the last twelve months Switzerland has moved towards changing its taxation policy radically, having accepted the standards on administrative assistance set by the Organisation for Economic Co-operation and Development. This has alarmed those who fear that such moves will undermine Switzerland’s legal distinction between tax fraud and tax evasion and destroy the principle of double criminality.

Switzerland - unlike the UK, for example - does not consider tax evasion to be a crime, which is one of the reasons Swiss banking secrecy laws have become world famous. Tax fraud, which includes actions such as falsifying documents, is, however, considered a criminal act.

Far from a “done deal”

At the time of publication, none of the DTAs conforming to the OECD standard have been signed into Swiss law yet, and while they are at different stages of the implementation process, they will all still have to pass the National Council, the lower house of the Swiss parliament. In June this year, the chamber will discuss the DTAs between Switzerland and the US, UK, France, Denmark and Mexico, the first such agreements to be discussed in the chamber.

The greatest opposition to these DTAs will come from the right-leaning Swiss People’s Party (SVP), which, with 62 out of 200 seats, has the most members in the National Council, but no majority.

A fierce critic of the DTAs, SVP MP Hans Fehr, told WealthBriefing that because the agreements are contrary to the principle of double criminality - which states that a foreign state can only ask Switzerland for administrative assistance in cases which are illegal in both countries - his party will try to block the agreements in parliament. If that fails, the party will try to call a popular referendum.

“The pressure put on Switzerland from abroad is unbelievable, as is the way our government capitulates to this pressure,” Fehr said.

Article 26 of the OECD standard regulates administrative assistance and states that the contracting jurisdictions must hand over tax information that is “foreseeably relevant for carrying out the provisions of this convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the contracting states.”

The provision that the information must be “foreseeably relevant” is of particular importance, as it appears to forbid what are commonly referred to as “fishing expeditions”. Switzerland will only have to provide administrative assistance in individual cases where the taxable person as well as their bank have been clearly identified.

Divided opinion

Opinions on whether the agreements should be implemented are split. Michel Dérobert, secretary general of the Swiss Private Bankers Association said: “The DTAs will presumably not be very harmful. They will be implemented by all jurisdictions, including Luxembourg, Singapore, [and all] offshore financial centres.”

On the other hand Fehr sees the possible implementation as something much more alarming, saying that it is “to the disadvantage of our own country and our financial industry”.

Besides being a member of parliament for the SVP, Mr Fehr is president of Aktion für eine unabhängige und neutrale Schweiz, the Campaign for an Independent and Neutral Switzerland. As this group has about 50,000 members, the amount of signatures needed to call a public referendum in accordance with Swiss direct democracy laws, Fehr’s chances of calling a referendum are significant.

“If there will be a referendum, then I am convinced that the Swiss people will vote against these agreements which are contrary to Swiss law,” Fehr said.

Dérobert believes that regardless of the “more vocal” opposition of the SVP in the National Council, the DTAs will be passed: “The majority in favour of these DTAs will be quite clear,” he said.

Dérobert said that he thinks a popular referendum, while being possible, is unlikely: “Getting the voters excited about these DTAs, as long as they are supported by the main political parties and the financial centre, will be difficult.”

So far, the OECD crackdown on tax evaders has not led to a great outflow of assets from the accounts of member firms of the Swiss private Bankers Association, which include 14 world famous Swiss private banks, such as Pictet & Cie, Wegelin & Co and Lomard Oldier; “But,” Dérobert added, “the DTAs have not been implemented […] yet.”

No matter what the outcome of these attempts to prevent the implementation of the DTAs will be, Switzerland has already said that it will not grant administrative assistance in cases of stolen bank data. This comes after some jurisdictions, most recently the German state of North-Rheine Westphalia, have acquired disks with data on clients alleged to be engaged in tax evasion. Nevertheless, Dérobert does not believe that the new DTAs will make states stop this legally questionable behaviour.

Although Switzerland has not signed the DTAs into law yet, it has initialled 12 OECD-conformist agreements and so has already secured a place on the OECD’s “whitelist” of jurisdictions deemed to have substantially implemented the international standard in matters of tax information exchange.