Swiss court forbids provision of UBS data to Dutch fishing requests. Yet banking secrecy has not been reinstated.

The phone has been ringing off the hook the past few months with calls from tax evaders who still wanted to make last minute use of the voluntary disclosure option. This was the result of articles about the Swiss bank UBS and then about Credit Suisse. Based on a ‘group request,’ banking information of Dutch account holders was supposedly being provided to the Swiss Federal Tax Authority, which in turn was transferring it to the Dutch Tax Authorities. A discussion broke out: is this fishing expedition excluded on the basis of the Dutch-Swiss treaty? Many tax evaders did not want to wait for the answer and decided to voluntarily disclose their Swiss equity to the Dutch Tax Authorities.

The national flag of Switzerland sticking in a pile of mixed european banknotes.(series)

The Switzerland Court: anonymous group requests are not admissible

In its ruling of last Monday, the Swiss federal administrative court in St. Gallen has now put a spanner in the works. The Dutch tax authorities had submitted the group request with reference to the Treaty with Switzerland for the prevention of double taxation. According the judgement of the Swiss court, it follows from provision XVI of the Protocol, which is part of the Treaty, that information requests can only be permitted if they pertain to identified individuals.

The judge quoted (§6.3) that the Protocol explicitly requires that the group request must meet sufficient specified information, in particular:

  • the person’s name and if known,
  • address,
  • account number,

but also other information to enable the identification of that person or group of people, such as:

  • date of birth,
  • civil status, and
  • tax identification number.

The group request by the Dutch tax authorities, however, did not even contain the names of the account holders involved in the investigation. Although the Swiss Federal Tax Administration (FTA) permitted this state of affairs, the court conclusively ruled (§ 9) that group requests without specification of the names that the investigation pertains to, are not permitted, based on the Treaty and accompanying Protocol. The ‘additional agreement’ that was entered into at the end of October 2011, and signed by Switzerland and the Netherlands in connection with the interpretation of the relevant provision from the Protocol and the ‘OESO commentary’ on the exchange of information between the Contracting States, has not led to a different ruling.

Reinstate Swiss banking secrecy?

Has this led to the reinstatement of Swiss banking secrecy? Certainly not. Although the Swiss court found the group request from the Dutch tax authorities to be too general, the Dutch court has approved this investigation methodology – which, in our opinion, (still) qualifies as a ‘fishing expedition’ – at national level.

The Tax authority will obtain the information it wants in a roundabout way. The Project Debit/Credit led by the Functional Persecution Office in Zwolle, for example, has ordered a credit card data provider to carry out a similar group request by the Dutch tax authorities. A banking secrecy that is respected abroad is undermined by this.

Through ‘information requests’ to (nearly) all processors of (credit and debit card) payment transactions active in the Netherlands, the Tax Authority has received transaction details about payment transactions that were carried out in the Netherlands with foreign debit or credit cards. during the period of 2009 through 2011. Using this transaction data, travel bureaus and car rental agencies, for example, have started ‘third party investigations’ to retrieve the identity of the card holder/user.

As a result of this, generously provided information, a number of criminal procedures have been instigated on these credit cards and the associated Swiss, Andorran and Luxembourg bank accounts. Those who (so far) are not included in the criminal proceedings, are being forced to submit proof against themselves through disclosure requirements and setting themselves up for a penalty or criminal case.

Not too late for voluntary disclosure

The Swiss tax authorities are expected to appeal the ruling by the court. Meanwhile, this ruling does offer support for anyone who has voluntarily disclosed or who is considering doing so; there is no reason to assume that the tax authorities would have tracked down these UBS (and Credit Suisse) tax evaders without voluntary improvement. For now, the phones can keep ringing.

Mr. drs. W. de Vries

Mr. K.M.T. Helwegen

 

Infringement of privacy or defence rights: exclusion of evidence in tax proceedings based on European law (WebMindLicenses)

Supreme Court directly overstepped by webcam girls? 

The European Court issued the seemingly ground-breaking WebMindLicenses ruling on exclusion of evidence in tax proceedings as the result of an infringement of European law (Union Law). While this case ‘only’ concerns the infringement of privacy and the use of evidence from an ongoing criminal proceeding, the consequences extend beyond the defence rights. For example, the provision of evidence in a tax proceeding obtained by force, which is subsequently used for evidence for a fine or punishment – despite the right to remain silent and the related right to not have to cooperate in your own conviction. Moreover, the Court is of the opinion that infringement not only has consequences for imposing fines, but also for determining the tax levy. 

toetsenbord stethoscoop

Lifejasmin.com’s privacy

The WebMindLicenses ruling of 17 December 2015 concerns the webcam girls from the website Livejasmin.com. The case essentially concerns the question whether, for the turnover tax, the ‘erotic interactive visual services’ were transferred to Portugal as the result of a license that was issued, or whether this had still been granted from within Hungary. Intercepted telephone conversations and seized emails from an ongoing case were used as evidence in the tax case. The question has been raised in the criminal proceedings whether this information was obtained illegally. The question at hand for the European Court: if the evidence was obtained illegally in the criminal proceedings and this had not yet been established, can that evidence be used in tax a proceeding?

European fundamental rights

Before the European Court deals with the question as to whether evidence for the tax proceedings should be excluded from this case, the broader context of the guaranteed rights will be defined within the broader context of the Union Law. In particular, reference is made to the Charter of Fundamental Rights of the European Union (the Charter), for which the EU has also published Explanatory Notes. Many of the human rights from the ECHR, such as the right to privacy and the right to a fair hearing, are incorporated into European law. Restrictions or infringements on these rights may only be made by law and must be necessary for recognised objectives of general interest, such as the prevention of fraud. That means that the restriction (of privacy, etc.) should be able to have the desired effect and not extend beyond that which is strictly necessary.

Exclusion of evidence

The European Court tests in three steps:

  1. Has the evidence in the criminal proceedings been illegally (without judicial authorisation) obtained
  2. Does the use of same by the tax authority constitute an inadmissible restriction on the defence rights because a less serious infringement could have sufficed
  3. In the case of infringement, will an ‘effective remedy’ be offered, either
    1. because testing may establish whether the Charter rights have been safeguarded;
    2. or the evidence will be excluded from use in the tax proceedings.

By doing this, the European Court is once more setting down markers in the area of privacy, after the method of exchanging information between countries had already been denounced in the Smaranda Bara ruling in October 2015.

Supreme Court directly overstepped by webcam girls?

Last year, the highest court of the Netherlands ruled that ‘illegal (criminal) evidence’ should not only be excluded in tax proceedings, but not even as evidence for the fine. The Supreme Court holds firm to its line set out in 1992 on the use of illegally obtained criminal evidence in a tax proceeding:

“The use of such evidence by the inspector is only prohibited if it is obtained in a manner that is so contrary to that which can be expected of a reasonably acting government, that this use has to be deemed inadmissible under all circumstances.”

Due to this strict rule from the Supreme Court, it boils down in practice that in many cases illegally obtained criminal evidence may be used in a tax proceeding. Advocate General Wattel also pleaded in favour last year for the tax penalty law to comply with the more flexible manner in which illegally obtained evidence is dealt with in criminal law. The Supreme Court rejected this advice, and ruled in its judgement of 20 March 2015 that the “such contradictory criterion” cited above still applies.

The European Court has since thwarted that and declared exclusion of evidence in the new standard, in each case where a matter of illegally obtained criminal evidence exists through infringement of the right to privacy. The Court does not limit this ruling to any fine, be also declares it applicable to determining the tax liability. The consequence when (the court determines that) the requirement laid down is not satisfied, is that the evidence will have to be excluded for the tax levy which, without sufficient other evidence, will have to result in the tax assessment being rendered void.

Other defence rights 

This judgement forms, in the first instance, a powerful argument for respecting privacy. Of course, any criminal investigation may infringe on the privacy of suspects and that does not automatically lead to exclusion of evidence. However, if a boundary is reached, as is the case here because no advance permission was granted by any court before telephones and emails were intercepted, unless, and this is subsequently what the national court concerns, it can be verified later on whether the confiscation was legal, necessary and did not extend beyond ‘effective’.

But there is more. The European Court does not only refer to the Charter for the right to privacy, but emphasises that all rights included therein weigh just as heavily as their counterparts in the Human Rights Treaty of 1950 (ECHR). For the question ‘and then?’: what is the sanction if an unreasonable infringement on the (privacy) right is determined in one of the preceding steps, the Court refers to the ‘rights of defence’ in article 47 of the Charter, which refers to the right to a fair hearing as (also) guaranteed in ECHR, Article 6.1.

Evidence provided by force

The right to a fair hearing includes, among other things, the right to remain silent and the right to not have to cooperate in your own conviction. In some respects, there is a large area of tension between these guaranteed rights and in other respects the tax obligations to acquire information. The ruling of the Supreme Court on the issue as to when forced information may be used for a fine, does not yet seem to be fully ECHR-proof.

The portal to the European Court, through which Tribunals, Courts and the Supreme Court submit (preliminary) questions on the interpretation of Union Law, is perhaps more interesting in these cases than filing an appeal with the ECHR. The latter Court may only become involved in the final stage when, after years, the Supreme Court has ruled – and, moreover, only for the fine. The European Court can come into the picture much faster and, moreover, also rule on the usability of evidence for the tax levy.

Restriction to ‘European’ cases

An observation that has to be made is that the European Court only deals with European cases, which means that there has to be a link to Union Law. That link can be made in various ways. For example, the turnover tax is regarded as a ‘European tax’ and an appeal can be made to, for instance, the Charter in cases concerning VAT. It is justifiable that the rights from the Charter are so fundamental and generally applicable that they should apply in any proceeding. However, according to the Supreme Court, this does not apply for a purely Dutch case concerning VAT. Each (EU) country still has its own income tax legislation, so that there is no link with Union Law – unless. Such an ‘unless’ crops up, for example, in discussions on tax evaders. Because the European freedom to save money in another country is utilised, the legal protection that the European Court offers in such matters comes into play.

The fact that guarantees for one type of tax may well not apply for the other types, does not, however, show a comprehensible distinction. This creates a strange situation in that for some taxes there is more legal protection than for others.