The end of swiss banking secrecy
Following the rift created by the FATCA (Foreign Account Tax Compliance Act), the Swiss Confederation’s banking secrecy is once again put to the test. The Automatic Exchange of Banking Information (AEOI) entered into force on January 1st.
Three years ago, the FATCA challenged a fundamental principle of the swiss banking sphere : banking secrecy. A list of persons subject to US taxation has been revealed by the swiss authorities, opening the way for new limitations on Swiss banks’ range of actions.
The automatic exchange of banking information was defined by the OECD in July of 2014. The “Standard for Automatic Exchange of Financial Account Information in Tax Matters” offers a standardized model of automatic exchange. Its main objective is to bring forth solutions focusing on increased efficiency and confidentiality.
The document defines in detail the type of analysed information, the way the information is collected and the organisation of the exchange between the signatory countries. It should help reduce the possibility of international tax evasion. Around a hundred countries have already decided to adopt the standard.
In concrete terms, the exchange is carried out in three steps. The banks collect information on accounts held by non-resident individuals from countries that ratified the standard, including individuals and corporate members. The data collected refers to the account holder’s identification : name, address, date and place of birth. Financial information, such as the account number, annual income and final balance are transmitted as well. The transaction data stays confidential. The second step consists of transmitting the information to the national tax authority who, in turn, sends the information to the national authorities of the other countries. It can be done automatically, on demand or spontaneously in some specific cases.
The Council of States ratified the first agreement in March of 2016. The Federal Council gave its authorization the following June. The transition to OECD’s standard means the end of Swiss banking secrecy for the signatory countries, including the 28 countries of the European Union. “It is a change in state of mind, but it would be useless to cling too tightly to banking secrecy. We now have an obligation for Swiss economic and financial standards to meet international standards “, explained Ueli Maurer, head of the Federal Department of Finance.
This new measure will have negative effects on the Swiss economy, first because it asks for financial investments in terms of infrastructure and implementation from banks and financial authorities. Additionally, many clients are expected to close their accounts with Swiss banks and leave the Swiss banking system. A third area of concern involves unreported income taxes.
The collection of information began on January 1st of 2017. Swiss banks will be required to transmit the information starting in 2018. This step marks the end of banking secrecy for foreign citizens.
Banner picture : the Geneva banks’ quarter. Credits to Eugénie Rousak
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