Switzerland: Tax Crime Regime To Be Revamped
05 November 2013
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Posted by: Authors: Bernhard Lötscher & Axel Buhr
Authors: Bernhard Lötscher & Axel Buhr (Lexology) Introduction
In May 2013 the government opened public consultations for a proposal
on a comprehensive overhaul of the Swiss tax crime regime. Following the
government's February 2013 proposal to implement the Financial Action
Task Force (FATF) Recommendations 2012 and redefine the criteria
characterising tax offences under Swiss law, the new proposal takes a
further significant step towards implementation of the 'White Money'
strategy adopted by the government. It recommends, among other things,
that the cantonal tax authorities be granted extensive powers to
investigate suspected tax offences, even in non-serious cases –
including access to bank records.
New criteria for tax offences
The FATF recommendations on International Standards on Combating Money
Laundering and the Financing of Terrorism and Proliferation require,
among other things, that serious tax offences in matters of direct and
indirect taxation constitute predicate offences to money laundering.
Whereas money-laundering regulations consider any felony (ie, an offence
which is punishable by more than three years imprisonment) as a
predicate offence to money laundering, evading direct taxes under the
current tax crime regime does not constitute a felony – regardless of
the circumstances.
Under the existing tax crime regime, evasion of direct taxes – whether
committed wilfully or negligently, and irrespective of the amount of tax
evaded – as a rule constitutes a mere contravention (ie, an offence
which is subject to a fine, but not imprisonment). Tax fraud (defined in
applicable Swiss law as a combination of forgery of documents or the
use of false certifications, in order to avoid direct taxes) qualifies
as a misdemeanour (which carries a penalty of up to three years'
imprisonment).
In February 2013 the government proposed to redefine the criteria
characterising tax offences and to implement a new structure for tax
offences under Swiss law (for further details please see "Government proposes to tighten legislation on money laundering and tax crime").
To implement the FATF recommendations, the government published a draft
bill for consultation, according to which tax fraud will no longer be
limited to the forgery of documents for the purposes of evasion of
direct taxes. The criteria characterising tax fraud will be extended to
include any behaviour which may be considered fraudulent. Further, tax
fraud will be considered as a misdemeanour only if tax factors of less
than Sfr600,000 have been concealed from the tax authorities. Cases of
serious tax fraud where tax factors of Sfr600,000 or more remained
unreported will be considered as felonies, carrying a penalty of up to
five years' imprisonment.
Overhaul of tax crime procedures
In May 2013 the government proposed to tighten the screws on tax
offenders in direct taxation. The proposal introduces new procedural
rules for the investigation and prosecution of tax offences to
complement the new set of tax offences defined in the February 2013
proposal.
Competence
Under the current regime, the cantonal tax authorities are competent to
investigate tax evasion. The cantonal tax authorities are required to
report any cases of suspected tax fraud (ie, where the taxpayer is
suspected of having submitted forged documents) to the public prosecutor
as the competent authority to investigate and prosecute misdemeanours
in direct taxation.
In its proposal the government suggests that cantonal tax authorities
will be authorised to investigate and prosecute all tax offences,
ranging from matters of negligent tax evasion to cases of severe tax
fraud.
Investigative powers
In cases of tax evasion, the existing regime lacks teeth. Tax
authorities have no meaningful powers to investigate tax evasion. While
the tax authorities may estimate the evaded taxes if taxpayers fail to
cooperate in properly assessing the taxes owed, the tax authorities have
no means to access the records of Swiss banks. Swiss banking secrecy
protecting Swiss and foreign tax payers from investigating Swiss and
foreign tax authorities has long been understood and appreciated as a
fundamental cornerstone of Swiss law on the protection of privacy.
With the revised tax crime regime, this cornerstone will be finally
removed. The tax authorities will be vested with comprehensive powers to
investigate suspected tax offences, even in cases of negligent tax
evasion where no indications for fraudulent conduct exist. As a rule,
and subject to the circumstances of each case, the tax authorities will
be empowered to:
-
examine suspects and third parties as witnesses;
-
request information from third parties (including banks);
-
seize documents (including bank records);
-
freeze bank accounts;
-
search offices; and
-
arrest suspects temporarily.
Domestic reporting
Under the current regime, there is no consistent system requiring Swiss
authorities to report suspected tax offences to the competent tax
authorities. Moreover, Swiss tax secrecy prevents cantonal tax
authorities from reporting any matters other than tax fraud to the
public prosecutor.
In its May 2013 proposal the government suggested that any Swiss
authority should report suspected tax offences to the competent tax
authority, and that cantonal tax authorities should report any other
suspected offences of which they become aware to the competent Swiss
authorities (eg, the public prosecutor).
Comment
The modifications to the Swiss tax crime regime proposed by the
government are ground breaking and mark a paradigm shift in the field of
direct taxation:
-
The procedural powers of the cantonal tax authorities to investigate
and prosecute tax offences will be significantly extended. The Swiss
authorities will henceforth be in a position to break banking secrecy.
-
A comprehensive reporting system will be established to facilitate
efficient information exchange among Swiss authorities. The Chinese
walls which have thus far prevented tax authorities from benefiting from
the findings of judicial authorities – and vice versa – will be eliminated.
The February 2013 and May 2013 proposals are yet to be adopted by
Parliament. During public consultations the proposals met widespread
criticism by political parties, lobby groups and organisations, and
interested parties. The results of the public consultations are yet to
be published by the government in respect of the May 2013 proposals.
However, it seems likely that the essence of the proposed bill will be
sent to Parliament unchanged, as the comments furnished in the
consultation process mostly welcome the thrust of the reform. This article first appeared in lexology.com.
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