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Bernard Lachenal
1. Preliminary remarks
The aim of the present note is to determine to what extent the provisions of the recovery of tax claims pursuant to the Multilateral Convention OECD and the Council of Europe on Mutual Administrative Assistance in Tax Matters dated 25 January 1988 and amended by the Protocol dated 27 May 2010 (hereinafter: the Convention) will be directly applicable if the said Convention entered into force in Switzerland and what the consequences will be.
2. The Multilateral Convention OECD and the Council of Europe on Mutual Administrative Assistance in Tax Matters
a) International context
The Convention has been in force since 1 April 1995. In 2010, the Convention was amended in order to account for developments in matter of international cooperation with regard to exchange in tax information and transparency. These amendments entered into force on 1 June 2011. As of 19 March 2014, the revised Convention had come into force in 50 out of the 64 States which signed it. Switzerland signed this Convention on 15 October 2013 but it must still be ratified in order for the text to come into force.
b) Provisions on recovery of tax claims
The means of administrative assistance as per the Convention are the exchange of information on demand (art. 5 of the Convention), the automatic exchange of information (art. 6 of the Convention) as well as the spontaneous exchange of information (art. 7 of the Convention).
The Convention further regulates the question of the assistance in recovery of tax claims in its articles 11 to 16 and pinpoints all topics such as recovery of tax claims, documents accompanying the request and time limits.
Article 11 of the Convention provides that after request of the applicant State, the requested State shall take the necessary steps to recover tax claims as if they were its own tax claim. Where the claim is against a person who is not a resident of the applicant State, the requested State shall take the necessary steps only where the claim may no longer be contested by judiciary proceedings, unless otherwise agreed between State Parties.
The requested State can comply with a request of assistance or reject it indicating the reasons therefor (art. 20 of the Convention). It shall not provide any assistance in recovery in the cases where the administrative burden for that State is clearly disproportionate to the benefit to be derived by the applicant State (art. 21 paragraph 2 letter h of the Convention).
c) Direct applicability of provisions on recovery of tax claims and reservations
Would Article 11 require an additional Convention to be entered into or is it directly applicable once the Convention comes into force? The main principle of the Convention is that all provisions are directly applicable once the treaty comes into force. Neither the explanatory report of the amended Convention nor the OECD handbook for the implementation of mutual assistance on recovery of tax claims provides with additional agreements to apply the provisions.
The sole exception remains in the automatic exchange information of the Convention (art. 6). The Federal Department of Finance pinpoints that the Convention needs an additional agreement to apply the automatic exchange information. If the State which has acceded to this Convention does not want to apply automatic exchange information, it has no obligation to conclude such agreement (Basic Document from the Federal Department of Finance on Convention OECD p. 2).
To exclude assistance in recovery of tax claims, it is possible for a State Party to formulate a reservation. Only reservations provided by Article 30 of the Convention can be made. Article 30 paragraph 1 letter b of the Convention specifically provides the possibility for a State Party to formulate a reservation so as to deny or restrict assistance on matter of recovery of tax claims. In particular, a State Party may decide not to grant assistance for the recovery of existing claims at the time of entry into force of the Convention (Art. 30 paragraph 1 letter c of the Convention).
The Federal Department of Finance points out that « all areas of cooperation governed by the convention don’t need necessary to be applied. […] The formulation of reservations can also exclude the assistance on matter of recovery and notification of documents » (Basic Document from the Federal Department of Finance on Convention OECD p. 2).
Moreover, the text contains a retroactive effect on Article 28 of the Convention: the Conventions shall have effect for administrative assistance related to taxable periods or charges to tax beginning on or after 1st January of the year following the one in which the Convention entered into force in respect of the Party which has been requested. But two or more Parties may mutually agree that the Convention shall have effect to earlier taxable periods or charges to tax.
Notwithstanding that, for tax matters involving intentional conduct which is liable to prosecution under the criminal laws of the applicant Party, the Convention shall have a retroactive effect going back to the tax period when the offense took place. But Article 30 paragraph 1 letter f of the Convention allows a State Party to formulate a reservation that limits the earlier periods to a maximum of three years preceding the year when the Convention has entered into force in respect of the said Party.
3. Current situation in Switzerland
The Convention was signed by Switzerland on 15 October 2013 but has still not been accepted by the Parliament. Thus, the Convention has not yet come into force in Switzerland and it will be so after ratification. It derives from the Federal Constitution that to ratify an international treaty, the Federal Council needs to submit it to the Federal Assembly for approval before it can be ratified.
Before its ratification by Switzerland, the Convention shall be submitted to the ordinary procedure: consultation of interested parties, message by the Federal Council to the Parliament, parliamentary approval and optional referendum. The Federal Department of Finance is in charge of presenting to the Federal Council a draft to the consultation.
Since the signing of the Convention, neither the Federal Department of Finance nor the Federal Council or the Federal Parliament have expressed themselves on the text.
As regards the possible reservations, the Swiss government has not disclosed its intentions at this time. Reservation can be made by Switzerland until the moment of ratification.
On the political level, the political parties expressed their view in the press after the signing of the Convention. The right-wing parties reject the text in its current form and expressed that they would try to block the approval by the Federal Parliament. They consider that only the strictly necessary adjustments must be implemented to prevent Switzerland to be put on the blacklist of the non-cooperative countries. On the other side, the left-wing party supports this additional step to a more extensive mutual assistance.
If and when the treaty shall have been approved by the Federal Assembly, 50’000 persons eligible to vote or any eight cantons may request, within 100 days from the official publication of the enactment, the Convention to be submitted to the optional referendum. If the optional referendum is not lodged within 100 days after the Federal Assembly approved the text, the Federal Council will ratify the Convention.
4. Conclusion
The process of discussion which leads the Swiss Parliament to stand on the question has not yet begun; for that, it is difficult to anticipate if Switzerland will ratify the Convention and will formulate a reservation with regard to mutual assistance on matter of recovery of tax claims.
The various opinions between the political parties in Switzerland augur an intense debate regarding the adoption of the Convention. If Switzerland ratifies the Convention without formulating a reservation, the text will come into force after it will have been ratified. The provisions on recovery tax claims will be directly applicable and will allow the Swiss tax authorities to recover in Switzerland the tax claims on behalf of a State Party to the convention. In the present political climate, it seems to me unlikely that Switzerland will accept a retroactive effect for mutual assistance on tax claims recovery.
