Tax secrecy versus tax information

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A burning international issue that has governments around the world in a quandary-Can local privacy laws override international information exchange agreements? Yes! A local court ruling in Switzerland has effectively blocked American access to information regarding the Swiss accounts of tax evaders. What repercussions will this have on the battle against tax havens? Will it prove to be a road block as revenue chases well, revenue? Isha Dalal finds out

Switzerland, February 2009: the US tax department goes after 52,000 American taxpayers holding offshore accounts with] Swiss bank UBS
August 2009: Provided with evidence of tax evasion, UBS agrees to reveal the details of 4450 American account holders to US tax authorities
But in January 2010: a local Swiss court disallows the sharing of information as it violates Switzerland's privacy laws
 
Michael Nordin, Partner, Schellenberg Wittmer
Under Swiss domestic law, a tax fraud can only be committed by using false or falsified documents. That's a criminal act. Whereas if a taxpayer simply does not declare an income or declares a too law income or assets, without underlining this with false documents, that is tax evasion and is not a criminal act. It's punished, but is not regarded as criminal under the legal system. And until now, recently, the banking secrecy has not been lifted for pure tax evasion.
 
London, April 2009:  In the midst of a global financial crisis, G20 member nations commit to following OECD standards on exchange of tax information.
Hours later, the oecd publishes a list that names and shames 38 'tax havens' and 'financial centers" that have yet to move towards tax transparency
To get off this black list-- countries are asked to sign at least 12 tax information exchange agreements or TIEAs each. Over 200 TIEAs are inked in 2009 alone.
 
Jeffrey Owens, Director- Centre for Tax Policy & Administration, OECD
If the agreements that we had set out were already in place, we would not have the type of issues that we are currently having with UBS. The case of Switzerland-ISwitzerland has already signed more than 12 agreements that meet the OECD standard, they're in the process of ratifying these agreements. Once those agreements are in place, then Switzerland will have to provide the information required from their treaty partners.
 
Porus kaka, Tax Counsel
If you've signed these agreements, you do not incite your own laws. If you do not change your own laws, the risk is you will go back on the OECD black list, you will subject to G20 sanctions and that is what is staring that particular country in the face.
 
February 2010: The Swiss Federal Department of Finance announces that it wants to "continue to cooperate" with other countries in combating tax fraud and tax evasion, and "to regularize undeclared assets."
But not at the cost of domestic privacy laws, says finance minister Hans-Rudolf Merz
 
Michael Nordin, Partner, Schellenberg Wittmer
Switzerland has a culture of an equal footing, trustful relationship between the citizens and the government. One sign of this is also that we have a self assessment tax system, which is that the citizen files his own tax returns and of course its subject to audit and examination and things like that. And if a tax fraud is deemed to be likely, then also the banking secrecy is lifted against the taxpayer. But nevertheless until anything like that is established, the privacy of personal data, including financial data, is protected. So that means Switzerland... it would be totally against the legal system and the culture to just open the accounts and share any kind of banking data like other states do.
 
Meanwhile the battle against tax havens has collateral benefits. The threat of more information being shared between countries has resulted in some very successful amnesty schemes.
 
Porus kaka, Tax Counsel
For example the Dutch government has earned 2.4 billion euros out of which Reuters says 1/3rd was from Switzerland amnesty scheme. The United States over 3000+ individuals have taken in for- and in the US, its not even an amnesty scheme. You pay tax, you pay the fine, only prosecution is avoided. Greatest is Italy-100 billion euros, and Reuters says 1/3rd from the Swiss canton of Tisino. So I think the noise has created a perception and that perception has brought people forward. 
 
And it may not be just perception! Voluntary exchange of information aside, jurisdictions are finding all kinds of ways to go after tax evaders! Just recently, Germany paid an informant for details on German taxpayers holding Swiss bank accounts . France did the same last year, and Liechtenstein did it in 2008. Of course the Swiss have raised the moral flag and questioned the political correctness of paying "bribes" to source information on tax matters. But most experts say that as long as exchange of information above board isn't working... its only fair that tax authorities do whatever it takes. In Mumbai, Isha Dalal.