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

 

Tax evaders at Credit Suisse decide before 24 March: withhold information from the tax authorities?

Next week, the deadline for preventing the provision of information to the Netherlands by the Swiss Federal Tax Authority (FTA) will close. Following the UBS, Credit Suisse has now also received a request to provide information about its ‘tax evaders.’ Although the only possible conclusion, in my opinion, is that this is a fishing expedition and therefore not permitted based on the Treaty, information will be provided if no objection or appeal is brought against the request. If a ‘saver’ has not (yet) been disclosed to the tax authority in the Netherlands, the stakes may be high.

Zurich, Switzerland - September 9, 2012: Main entrance of the Swiss bank's Credit Suisse headquarter on Zurich Paradeplatz.

Credit Suisse exchange of information

After it was announced at the end of last year that the Swiss bank had provided UBS with information on the request of the Tax Authority, Credit Suisse also informed its Dutch ‘tax evaders’ on 4 March 2016 that – unless an objection was filed – that it will provide their banking information to the Dutch tax authority via the Swiss Federal Tax Authority. This time it concerns a group request, whereby the banking information of all Dutch citizens who had an account at Credit Suisse, with a balance of at least EUR 1,500 between February 2013 and the end of 2014 will be provided. Information about bank accounts that have been closed in the meantime will therefore also be exchanged.

Following the initial success with the UBS and Credit Suisse, it is expected that similar group requests will be made to the Swiss banks Julius Bär, UBP and Sarasin.

Deadline until next week

Credit Suisse has now also sent a letter to a group of identified Dutch savers with the request from the Swiss tax authority as an enclosure. These savers must respond to the letter within 20 days after the letter – so, before Thursday, 24 March – providing either an address in Switzerland or a Swiss authorised representative.

If there is no response, there is threat of an ‘anonymous publication’ in the Bundesblatt – the ‘final decision’ will be published here, which will mean:

  • that, according to the Swiss tax authority the requirements for information requests have been met;
  • that the request from the Netherlands can be executed for the period from 1 February 2013 to 31 December 2014;
  • that the information was requested from the Credit Suisse by the Swiss tax authority;
  • that the parties involved cannot file any objection or appeal against this.

Doing nothing is providing information

The previous group request to the UBS showed that information about savers who did not respond was actually provided to the Netherlands. More and more (ex) UBS account holders are receiving post from the Tax Authority stating that they have been identified as an account holder. It looks like (a lot) more information from Switzerland has been provided than the ‘approximately 100’ that have been reported so far.

Various objectors that had indicated in Switzerland that the voluntary disclosure procedure has started in the Netherlands have been able to successfully stop the provision of information. The procedures that were appealed at the Swiss court are still on-going and we the outcome of these is still pending. The race of the Dutch tax authority is therefore not over yet. Given the text of the Treaty, it is my expectation that the (highest) court in Switzerland will ultimately rule that the group ‘fishing’ request has to be rejected.

Well-founded appeal

After the final decision – which may or may not be published in the Bundesblatt – the appeal for this group of Credit Suisse savers may be appealed within 30 days. All cards have to be on the table for this, however: all the reasons why the persons involved disagree with the provision of information to the Netherlands must be stated directly in the appeal.

To prevent the provision of information, the following has to be done within this 30-day term:

Request for ‘banking institution correspondence’

The latest development in the land of voluntary disclosure is that the Tax Authority is now routinely requesting the foreign bank’s correspondence. The Tax Authority, moreover, claims that providing this letter or these letters is supposedly mandatory. Correspondence that shows that a saver was aware of possible or intended provision of information, or in which it is states that the obligation to report equity to the Dutch tax authority is, however, not relevant for the levy.

After all, the tax to be paid does not depend on whether your bank wrote about tax obligations or the possibility of information being provided to the tax authorities. The correspondence may, however, be incriminating: the knowledge of which means that you are too late for voluntary disclosure? Because it is not relevant to the amount of the tax to be paid, taxpayers are therefore not obliged to provide this and the tax authorities therefore cannot force them to do so. In my opinion, the Tax Authority is abusing their power by making this request.

Voluntary disclosure is still possible

The interest that the tax authority does have (or thinks they have) is the penalty interest: these types of letters could be used to prove that the disclosure is too late. This, however, is still open to debate. It has not yet been determined what the final ruling is going to be on the justification of the Dutch group request. In other words, anyone that knew that they were on ‘the list’ following the group request, did not have to expect that information would be provided to the Netherlands and that the tax authority would track them down anyway. Voluntary disclosure is therefore still possible.

Mr. V.S. (Vanessa) Huygen van Dyck-Jagersma

The Panama Papers – naming and shaming

This week the news services are falling over themselves regarding the information that they want to publicise about the Panama Papers. The reporting initially covered the working method employed by the Panamanian service provider, but as time goes by, more and more names of the service provider’s customers are being disclosed. But what is the relevance of publicising these names? What is keeping them from presenting the facts in a negative way? In short, the reporting ties in perfectly with naming and shaming.

Stand, sun, sea, palm beach chair. So one imagines a tax haven.

Panama Papers

The Panama Papers are documents from the service provider’s (internal) administration in, you’ve already guessed it, Panama. This service provider provides legal advice and trust services to its customers. As the press releases show, the customers are from a variety of backgrounds. Not only heads of governments would avail of the service, but also the butcher around the corner.

The Panama Papers would divulge the service provider’s working method. That working method would entail the service provider setting up an offshore company for a natural person. A share of the natural person’s assets would be incorporated into this offshore company. What is the advantage of that? The most straightforward advantage that comes to mind is – of course – that various tax rates can be used. In most cases, the offshore company will be established in a country where the tax rates are somewhat more attractive than in the country where the natural person resides. But that is not by a long shot the reason why all natural persons invest offshore. Other reasons could be spreading the risks or protecting the natural person’s estate.

The current press releases only bring the initial benefit (reducing the tax burden) to light because this is obviously ‘juicy gossip’ and sells well. This is quickly followed by the fact that it would not be quite so easy to derive from the information from the offshore companies which natural person is hiding behind the company. While normally speaking that would be a ‘disadvantage’, or as Johan Cruijff used to say ‘every disadvantage has an advantage’ of this working method, this is not the case with the Panama Papers. After all, it seems from the news reports that the cooperative of journalists were able find out which natural persons are behind the offshore companies relatively easily based on the information known to them.

How the documents from the service provider’s administration wound up in the hands of Süddeutsche Zeitung is still a mystery. That newspaper has in turn shared the files with the ICIJ (The International Consortium of Investigative Journalists), an international association of journalists. This association, which includes the Dutch newspapers the Trouw and the Financieele Dagblad, is working on analysing the documents. Bit by bit, information is being disclosed to the outside world.

The journalist association shrouds itself in mystery, while the service provider takes the stand that the computers have been hacked. This immediately raises the question whether the Tax Authority should be allowed to use the information in a legal proceeding or has this information been obtained by illicit means. Given the case law in the area of microfiches from the KBLux bank affair, this will most likely not be the case with the tax authority and will be glossed over as usual.

Tax avoidance vs. tax evasion

A man is but a man and (apparently) every man, big or small, fat or thin, preferably wants to pay as little tax as possible. Given that there are also people at the top of all large international companies, this also explains why these companies are keen to avail of complicated constructions and advance certainty by means of tax rulings, etc. A lot has been said about this in the past months.

The country where a natural person has to be pay tax depends on his/her place of residence (Article 4 of the Dutch State Taxes Act). To reduce the tax burden a natural person will have to initiate a working method that ensures that part of his assets are transferred, so that this can be accommodated elsewhere (read: in a country with a more lucrative tax system). That is also the direct crux of the Panama Papers.

The bottom line is that the working method of the Panamanian service provider is that an offshore company is set up for the natural person. The core of the working method is that a share of the natural person’s assets is incorporated into the offshore company. Consequently, the tax levy of the natural person’s country of residence no longer applies, but that of the country where the offshore company is established. The tax levy of this country is usually considerably lower than that of the natural person’s country of residence. This therefore offers a direct advantage.

The question that then remains to be asked is whether the financial advantage gained qualifies as tax avoidance or tax evasion. That qualification is extremely important because everyone is within their right to avoid tax (reduction of the tax burden within the boundaries of the la), while tax evasion (reduction of the tax burden outside the boundaries of the law) is a criminal offence.

While not all of the facts and circumstances of the issues surrounding the Panama Papers are known yet, we all have to make do with the information exposed by the journalists, the media is already screaming ‘blue murder’ and every effort is being made create the impression that it is all about tax evasion. That conclusion, however, cannot be reached just like that.

Tax avoidance only applies if the reduction of the tax burden is effected outside the boundaries of the law. It may well be the case that the natural person incorporates a share of his/her assets in an offshore company and does not declare his/her stake in that company on his/her income tax return. Whether this involves the Panamanian service provider’s customers, is not known. That information is only known to the relevant customer and possibly the Tax Authority of the natural person’s country of residence. While the customer concerned does not feel the need to justify its financial wheeling and dealing publically, the Tax Authority is bound by the obligation of confidentiality (AWR, Article 67) and will therefore also have to ‘keep their mouths shut’. In short, that’s playing right into the hands of the journalists, because this gives them ammunition to continue to speculate and make assumptions, which the majority of people believe to be true.

Naming and shaming

As I already mentioned, the initial publication on the Panama Papers focus on analysing the Panamanian service provider’s method of working. The first names of this service provider’s customers were quickly publicised. While these were foreigners yesterday, as of today, there are also Dutchmen among them. But is it necessary to publicise the service provider’s customers by name and in doing so give the impression that this is a matter of tax evasion? And what do we stand to gain by publicising these names?

If it is a case of tax evasion, is it any worse if it concerns a footballer or a former member of the Supreme Court? I don’t think so. Article 69 of the AWR states that “anyone that intentionally fills out a tax return provided for under the Tax Act incorrectly or incompletely (…) whereby they do not pay enough tax, that person will be fined, punished (…).” This legislative text does not make any distinction between different tax obligations. Be it the butcher on the corner, the footballer or a former member of the Supreme Court, if he/she files an incorrect or incomplete tax return, he/she is equally liable to punishment.

This does not exclude dubious reporting of information. The information that is provided on the former member of the Supreme Court initially suggests that the member in question has used his/her Supreme Court membership for an offshore company. However, on closer examination (insofar as all the facts are known) it transpires that the offshore company was only set up 11 years after the Supreme Court membership ended. Even so, public opinion will not bear this in mind, but rather emphasise that even a former member of the Supreme Court has made use of an offshore company to reduce his/her tax burden.

The only reason for naming the names of the service provider’s customers in newspaper articles is therefore within the context of ‘naming and shaming’. ‘Naming and shaming’ basically comes down to certain, unsatisfactory situations being exposed publically. In this case, the natural person is exposed by a publication (naming) and the announcement and/or information is portrayed in this publication in a bad light (shaming). That is exactly what has happened in the current news coverage. Customer names are publicised, and the information painted in such a light that any random reader will think that the person in question has evaded tax and is therefore a villain.

While freedom of the press goes too far, that same freedom is still subject to certain boundaries. You see, the press hounds may not injure a person’s good name or reputation. The Supreme Court deems rumours being presented as facts and the accuracy of the information not being first verified as the deciding factor for defamation. So, before going to press, certain information has to be verified to ensure its accuracy. Whether that was also done in the case of these Panama Papers is doubtful. A number of reports did indeed point out that the Tax Authority was asked to respond, but the Tax Authority have an obligation of confidentiality and are unable and will not provide any information on the accuracy of the information. There is nothing to indicate that the customers concerned, who have been now been named and shamed, have been asked to respond.

In short, as interesting as the information from the Panama Papers may be, the cooperative of journalists would do well to disclose this information in an accurate and proper manner. To my mind, that manner should be such that naming and shaming is avoided. After all, that does not in any way whatsoever contribute to the tax levy in, for example, the Netherlands. Hopefully the cooperative of journalists will take this into account before publishing the information.

Conclusion

The world is in turmoil after announcement of the Panama Papers. The manner in which this information is being exposed raises the necessary questions. The cooperative of journalists are not afraid to name and shame. In doing so, the Panamanian service provider’s customers are shunned as tax fraudsters, while there are known facts that do not (yet) give any cause for this. Making use of an offshore company does not automatically imply tax evasion (a criminal offence), but may qualify as tax avoidance (everyone’s right, because this falls within the boundaries of the law). The latter may well not strike a positive chord either, but it doesn’t necessarily mean that anyone involved is a villain or fraudster