Swiss Mutual Tax Assistance

When the vault door opened

If you have a client with a Swiss bank account, or if you are that client, a foreign tax authority probably already knows about it. For most of its modern history, Switzerland politely declined to hand over financial information to foreign governments. Then came the 2007-2008 financial crisis, and in 2009, everything changed. A new regime came into force, fast, sophisticated, and heavily tilted in favor of international cooperation. How Switzerland moved from one world to the other, and what rights remain for the taxpayer, is what this article is about.

The old world rested on a set of domestic tax categories that determined whether Switzerland would cooperate or refuse. The words do not mean what you might expect. In US and UK tax law, “evasion” is a crime and “avoidance” is legal planning that is abusive. In Switzerland, it is almost exactly the reverse.

“Tax evasion” (évasion fiscale, Steuerumgehung) in Switzerland is an abuse of law, where a taxpayer follows the letter of the statute but defeats its purpose. The consequence is a correction of the tax assessment, nothing more. No fine, no prosecution. What is punishable is “tax avoidance” (soustraction d’impôt, Steuerhinterziehung), the deliberate failure to declare taxable income or assets, typically resulting in a fine. And then there is “tax fraud” (usage de faux, Steuerbetrug), which requires the use of a forged document and, unlike tax avoidance, is criminally prosecuted.

Only this last category, fraud involving forgery, was serious enough to override Swiss banking secrecy. A taxpayer who simply failed to declare a Swiss bank account in their home country was beyond reach. Banking secrecy stood in the way, and it was not going to move for anything less.

Then, in 2009, under enormous international pressure, Switzerland agreed to replace the fraud threshold with something far broader. The domestic tax distinctions did not change. But the door to international cooperation, once locked behind three bolts, was thrown wide open.

From forgery to “foreseeable relevance”

In March 2009, the Swiss Federal Council decided that Switzerland would adopt the OECD standard for tax information exchange. The new threshold became “foreseeable relevance”. The phrase sounds innocuous. Its consequences were not. Within a few years, Switzerland renegotiated dozens of treaties, enacted dedicated legislation, and began processing thousands of requests per year.

Switzerland now operates three channels of information exchange. Exchange on request (a foreign authority asks for information about a specific taxpayer). Spontaneous exchange (Switzerland proactively shares certain information, principally tax rulings). And automatic exchange of information (AEOI), under which Swiss financial institutions report account data on foreign residents annually to over a hundred countries.

One might observe, with a certain Swiss sense of irony, that Switzerland embraced automatic exchange just as others were stepping away from it. The United States has never joined the AEOI. Instead, it enacted FATCA, requiring the world to report to the IRS while offering almost nothing in return (for now, at least). Swiss banks transmit financial data to the United States automatically. The United States does not reciprocate. If you visit Wyoming or South Dakota today, the trust and corporate privacy on offer bears a passing resemblance to the Switzerland of decades past. Mutual assistance on request still works both ways, but the automatic flow of information runs in one direction only.

This article focuses on exchange on request, because it is the one that generates litigation, the one where taxpayers have rights, and the one where things can go very wrong if you do not act quickly.

How it works, in plain terms

A foreign tax authority suspects that one of its taxpayers holds undeclared assets or income in Switzerland. It sends a formal request to the Swiss Federal Tax Administration (FTA), identifying the taxpayer and explaining why the information sought is foreseeably relevant to an ongoing tax investigation.

The FTA issues a production order to the information holder, typically a bank, sometimes a trust company, or a cantonal tax authority. The information holder must comply. Banking confidentiality is no longer an obstacle. The international conventions expressly override it.

Once the FTA has gathered the documents, it notifies the affected taxpayer, who has 10 days to either consent to the transmission or file observations explaining why the information should not be sent. If the taxpayer objects, the FTA issues a formal decision, which can be appealed to the Federal Administrative Tribunal, and from there, under restrictive conditions, to the Federal Supreme Court.

The entire procedure is governed by tight deadlines, and there are no judicial holidays in mutual assistance cases. That alone tells you something about the legislative mood.

The threshold is low, remarkably low

The central requirement for a valid request is “foreseeable relevance” (pertinence vraisemblable, voraussichtliche Erheblichkeit). This is the key that opens the door. And it is, by design, not a very demanding key.

The Federal Supreme Court has made clear that this threshold does not require certainty that the information will be useful. It is enough that there is a reasonable possibility that it might be relevant to the foreign tax investigation. The requesting state does not need to prove that the taxpayer has actually evaded taxes. It needs only to articulate a plausible reason for wanting the information.

If you are a taxpayer hoping to block a request, you should know that the fight ahead is a difficult one. The Swiss courts give wide deference to the requesting state, and the principle of good faith between treaty partners means that Switzerland will generally take the foreign authority at its word unless there is concrete evidence of bad faith. And here lies a curiosity. The threshold for what qualifies as bad faith in mutual assistance is so extraordinarily (perhaps even metaphysically) high that conduct which would void a contract, end a partnership, or trigger sanctions in virtually any other area of Swiss law is simply… not enough. A contract lawyer reading the case law would need a moment to sit down.

One could be forgiven for thinking that Switzerland, having stopped looking the other way on banking secrecy, has quietly started looking the other way on what foreign authorities do with the information they receive.

But the openings exist. And finding them is what we do.

The guardrails (yes, they exist)

The difficulty in litigation does not mean that the process is a rubber stamp. Swiss law and the applicable treaties do contain guardrails, refined over the years by the Federal Supreme Court. They are not fortress walls (actually more like well-trimmed garden hedges), but they are real, and worth knowing.

• No fishing expeditions. A requesting state must ground its request in concrete suspicion, not curiosity. The rule sounds reassuringly protective. In practice, the Federal Supreme Court has accepted a single request targeting over 45,000 bank accounts identified only by account number and found that this was not a fishing expedition. One might wonder what a fishing expedition actually looks like if 45,000 accounts do not qualify. The answer, it seems, is that the rule prohibits randomness, not scale.
• The principle of specialty. Information transmitted may only be used for the tax purposes stated in the request and cannot be deployed against persons other than those identified. The Federal Supreme Court has recognised that this principle has a personal dimension, meaning the requesting state cannot use the information against third parties unless both countries’ laws permit it and the FTA consents. Whether the receiving state actually respects this is, candidly, beyond anyone’s power to verify. Coordination with counsel in the requesting country may prove valuable here. If there are concrete indications that the foreign authority intends to misuse the information, that can form the basis of a bad faith objection capable of blocking the transmission.
• Attorney-client privilege. Documents held by a lawyer in connection with their professional activity are protected. The Federal Supreme Court has confirmed that this extends to bank accounts opened through the “Form R”, a declaration that the account holds client funds, which benefit from a rebuttable presumption of professional secrecy. But documents voluntarily transmitted to a third party, such as a cantonal tax authority, lose their protection. The confidence is protected as long as it does not leave the lawyer’s hands. Once it does, it is fair game.
• Public policy. The Federal Supreme Court has refused to grant mutual assistance to Russia, finding cooperation incompatible with Swiss public policy, including respect for the rule of law and the guarantees of the European Convention on Human Rights. The Court also noted the risk that Russia would not respect the principle of specialty, a diplomatic way of saying it did not trust the Russian authorities to use the information only for tax purposes. If geopolitics can block mutual assistance to Russia, one wonders why it should not block it to a number of other countries as well. I am a lawyer, not a politician, but this reasoning could well become a line of defense against requests from other states.
• Subsidiarity, but barely. The requesting state must in theory have exhausted its own domestic means before turning to Switzerland. In practice, the Federal Supreme Court has ruled that this does not require questioning the taxpayer first, and that a violation of subsidiarity does not even constitute a ground for refusing assistance. The principle exists, but it has baby teeth.
• The stolen data question. The most famous test case involved Hervé Falciani, a former HSBC employee in Geneva who stole client data and handed it to France, which filed requests with Switzerland. France then appeared to have shared the data with India, which filed, in turn, its own requests with Switzerland. The Federal Supreme Court refused the French request, finding bad faith because France had specifically promised not to use the stolen data and then did exactly that. But when India used the same data, the Court allowed it. India had not made any such promise and had not purchased the data. The principle is clear but narrow. A request based on stolen data is only refused if the requesting state itself bought or solicited it. The taxpayer bears the burden of proving this, which is nearly impossible. The requesting state is not even required to disclose how it obtained the information.

A word on group and collective requests

Swiss law distinguishes between individual requests (targeting a named person), collective requests (listing multiple identified individuals), and group requests (targeting an unnamed group sharing a described pattern of behavior).

Group requests were only formally authorised from 2013 and are subject to the strictest conditions. The request must describe the group, explain the suspected pattern of non-compliance, and demonstrate that the information sought is apt to ensure compliance. Collective requests are more common in practice. The leading case, involving France’s request for data on over 45,000 UBS accounts identified only by account number (which we mentioned above), was found to be admissible. Even at that scale.

Deadlines and procedural traps

One of the most dangerous features of Swiss mutual assistance proceedings is speed. The appeal period before the Federal Administrative Tribunal is 30 days with no judicial holidays, meaning the clock runs through Christmas, Easter, and the summer break. Before the Federal Supreme Court it drops to 10 days, and access is restricted to “legal questions of principle” or “particularly important cases”, somewhat like certiorari before the U.S. Supreme Court, you must convince the Court the case is worth hearing. Fail and the appeal is dismissed within 15 days.

Appeals do carry automatic suspensive effect, meaning the information cannot be transmitted while the case is pending. But this only works if the appeal is filed on time.

How we can help

At Charles Russell Speechlys Switzerland, we handle Swiss mutual assistance cases from start to finish. Our white-collar litigation specialists bring complementary expertise in the criminal dimensions of mutual assistance, where tax fraud investigations intersect with anti-money laundering proceedings and international cooperation in criminal matters.

If you are facing a mutual assistance request, or if you suspect one may be coming, we would be glad to hear from you.