Swiss Supreme Court Approves Netherland Group Requests Under Double Tax Treaty (9/16/18)

Although other countries' tax initiatives involving secret accounts is not the main focus of this blog, I thought readers might be interested in this article because it illustrates the continuing and expanded interest in an area where the trail was blazed by the U.S. starting with the UBS initiative in 2008.  In addition, the decision reported here plus related initiatives reported will have wide impact.

The Swiss Federal Tax Administration has decided that it will respond to so-called group requests may be made under the Switzerland-Netherlands double tax treaty (sometimes referred to as "DTT NL"), just as it is now responding to such requests under the Switzerland-U.S. double tax treaty.  (I sometimes refer to such group requests as John Doe treaty requests because they function like John Doe Summonses in the U.S. system in terms of identifying unknown taxpayers by identifiable characteristics.) That decision has been sustained by the Swiss Federal Supreme Court.  For a good write up, see Jueng Birn, Swiss Federal Supreme Court considers Dutch Group Request as permissible (KPMG Switzerland Expert Blog 9/14/16), here.

The Netherlands group request had the following characteristics to identify the account information requested:

• UBS clients domiciled in the Netherlands who had held an account with UBS in Switzerland between 1 February 2013 and 31 December 2014.
• UBS had sent the client in question a letter in which they were informed that their account would be canceled unless the client could prove his or her tax conformity.
• The client did not prove his or her tax conformity to UBS.

And, a practically identical request was made to Credit Suisse.

JAT Note:  the characteristics of such requests made by the U.S. are more detailed.  See Swiss FTA to Pass HSBC U.S. Depositor Information to IRS Under Treaty (Federal Tax Crimes Blog 7/27/16; 7/28/16), here.

The KPMG report indicates that, after the FTA approved the request, an affected client successfully appealed to the FTA Court on the ground that requests without names were not authorized under the DTT NL.  The Swiss Supreme Court then on further appeal allowed the request.  The KPMG report discussion of the Swiss Supreme Court decision is:

According to the Swiss Federal Supreme Court’s interpretation of the DTT NL, it is sufficient if the group request contains sufficient information that will allow an identification of the person in question to be able to provide administrative assistance. That specifically naming a client is not mandatory is due to the purpose of the DTT NL, which according to the relevant protocol consists of, “an exchange of tax information to the maximum extent without allowing the states partial to the agreement to go on “fishing expeditions”. 

Finally, the Swiss Federal Supreme Court also checked whether this could be considered a legitimate group request or indeed a fishing expedition, which would not have been permitted. Despite the fact that the definition of group in the present request for administrative assistance goes quite far, the Swiss Federal Supreme Court judged that it is not an inadmissible fishing expedition.

The KPMG report indicates the impact is:

Impact of this decision 

Switzerland has already concluded more than 60 double taxation treaties and tax information agreements, which permit administrative assistance based on group requests. Moreover, under the OECD administrative assistance convention concerning Switzerland, group requests will be possible in any case as of 2017. The administrative assistance convention foresees retroactive effect to 1 January 2014. 

We expect a number of other states to follow the example set by the Netherlands and to address Switzerland with similar group requests. At this time, it remains to be seen which countries will place a similar request.

For related coverage, see

• Swiss Court Sets Precedent With Release of UBS Client Data (Fiunews.com 9/12/16), here.  
• Joshua Franklin and Angelika Gruber, Swiss Supreme Court rules bank data can be sent to Dutch (Reuters 9/13/16), here.  
• Swiss noose tightens around suspected Dutch tax evaders (Swissinfo.ch 9/12/16), here.