UBS tax evaders still subject to punishment under criminal law?

After publicity about the ‘group request’ of the Netherlands to the Swiss tax authorities, several UBS-account holders opened up about their nondisclosed assets. The question is whether or not they qualify as a ‘discloser’ and are as such indemnified from punishment under criminal law and higher fines. I believe that the majority disclosed within the stipulated period. Below I will explain why I believe this to be the case, and why this example is even stronger as a specific sign that this UBS’er ‘would be caught’, was lacking.

Preview

This UBS-saver, let’s call him Youri*, reported to the tax authorities that he had kept some black money on a bank account in Swiss. When doing so he relied on the (lower) fines that apply to a promptly voluntary improvement. He reported after there was national press coverage about the Dutch group request to the Swiss tax authorities on 27 September 2015.

In my opinion, the court considers the disclosure wrongly as ‘too late’:

  1. Youri doesn’t have an ‘objective expectation’ of discovery by the Dutch tax authorities since an Swiss letter addressed to him is lacking;
  2. until 12 September 2016, it was a realistic expectation that Switzerland did not exchange such information;
  3. the court implicitly judges that every tax evader is too late for disclosure.

* Youri is a fictive name based on the similarity of its sound with the letter U of UBS.

The context

What is the interest? I wrote about this earlier this year in my blog ‘What can the tax evader await by 2018?‘ (in Dutch only).

The importance of a disclosure in time is not so much the ever diminishing reduction of the fines (currently up to 120%), but the criminal ‘escape’ it offers. If the notice is filed on time, then no criminal prosecution is possible for intentional wrong tax declarations (i.e. tax fraud) nor for money laundering or forgery of documents, if directly related.

This year the voluntary disclosure regulation has been abolished. You can however still rely on the voluntary disclosure regulation. The abolishment of the voluntary disclosure regulation only applies for:

– revenue from foreign assets, that has been

– nondisclosed in declarations that have been made from 1 January 2018 onwards.

A notice is on time if it is filed before (s)he knows or reasonably should presume  that the inspector is aware or will be aware of the inaccuracy or incompleteness’ (in Dutch).

The judgment

The court determines that:

  • the Dutch group request to the Swiss tax authorities has been covered in the national news on 27 September 2015;
  • the notice by Youri was made afterwards, on 4 January 2016;
  • Youri therefore shall have been aware of the group request to (all) the Dutch tax evaders with a Swiss UBS-account; and
  • thus, there was a real possibility that the tax authorities would detect his UBS-account.

Thus, the court concludes, at the time of his report on 4 January 2016 Youri should have presumed that the tax authorities, because of the group request, would become aware of his UBS-account, as a result of which the notice of disclosure was filed too late.

According to the court, the following circumstances have no bearing on the judgment of ‘no voluntary disclosure’:

  • on 4 June 2016 no certainty existed whether or not Switzerland would exchange information;
  • Youri didn’t receive a letter of the UBS about the intention to exchange his data in the context of the group request; and
  • it also turned out that he didn’t fall within the group request.

In short, the court decides that every UBS-er now ‘reasonably should presume’ that the tax authorities will detect him. Also those who didn’t receive a message from Switzerland and thus didn’t have a specific expectation that the Swiss tax authorities would exchange their data.

Objective expectation of discovery

But what is too late? Is every chance of discovery fatal, or is a little nuance still possible? The Dutch Supreme Court (in Dutch) earlier ruled that:

As long as the “serious possibility” of non-discovery exists, a disclosure has been made on time.

The question thus is whether – at the moment Youri filed his notice in January 2016 – there was a ‘serious possiblity’ that Switzerland wouldn’t exchange the information and therefore the tax authorities wouldn’t become aware of the nondisclosed assets. If the group request qualifies as ‘fishing’ which is an illegitimate way to actually trace tax evaders, no objective expectation on discovery exists.

A timeline:

  • after the first notice about the group request in September 2015, the expectation existed that Switzerland would consider the Dutch request as a ‘fishing expedition’ and thus would refuse it on the grounds that it was not specific enough. It should be recalled that the specifications stated that it had to concern:
  1. a) Dutch people with
  2. b) a balance of a minimum of € 1.500 that
  3. c) did not report themselves already.

In November 2015 I wrote that the request should be addressed as scaremongering (in Dutch):

The request for information by the Dutch Tax Authorities to UBS seems too broad and too vague. The chance is very real that the information gathering will be considered as ‘fishing’ and for that reason the information will not be provided to the Netherlands.

  • on 21 March 2016 the Swiss judge indeed prohibited (in Dutch) the issuing of UBS-data based on the as ‘fishing’ considered request for mutual legal assistance from the Netherlands;
  • only on 12 September 2016 the Bundesgericht, as highest court in Switzerland, considered that the group request is no ‘fishing expedition’ after all (in Dutch), so the information may be exchanged nevertheless.

Extra: every tax evader too late?

As an extra the court considers: Youri couldn’t believe that the tax authorities ‘would refrain from further investigation into tax evaders’: “… not decisive is whether the claimant himself – subjectively – would suspect that the defendant would trace his UBS-account, but whether he – objectively – should have reasonably suspected. Claimant did not convincingly argue that he could otherwise believe the defendant [the Dutch tax authorities] would refrain from further investigation into tax evaders at the UBS.

In other words, the tax authorities could have made a new or additional request? Interpreted very broadly, in the eyes of the court any tax evader will be considered ‘too late’. The tax authorities surely can always, at every bank, in any country, file a request. As by now has also been shown.

However, it must regard an investigation which you may actually expect to take place. Possible future requests or further investigation cannot create ‘objective expectations’.

Concluding

The court considers it decisive that the Dutch group proposal from 27 September 2017 was extensively covered in the national news and that the notice of Youri was filed afterwards. Youri should have known about the news and the risk that he ran of being traced by the tax authorities.

I would dispute this because for the following reasons:

  1. Youri was not part of the group request and therefore didn’t receive a letter about the intention to hand over his data to the Netherlands. As a result the curtain has come down for the tax authorities. All of those who were part of the group request have after all been informed in conformity with the Swiss rules. Thus: no letter, no objective expectation. (Subjective) fear is irrelevant;
  2. In the period until September 2016 the realistic expectation was that Switzerland would consider the Dutch request as ‘fishing’. This all only changed when the highest judge in Switzerland at a later date permitted the exchange after all. Until that time, the ‘serious possibility’ existed that (all) UBS’ers would not be discovered and – according to the Supreme Court of the Netherlands – disclosure would still be in time;
  3. Future requests or investigations at UBS cannot create an ‘objective expectation’.

 

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

 

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