Lowrance Law, LLC

The U.S. Treasury Department announced on June 19 (see Treasury Press Releases) that Switzerland will agree to more exchange of financial information for tax enforcement purposes.   Treasury Secretary Timothy Geithner said the new accord “will increase our ability to enforce our tax laws and will help bring an end to an era of offshore accounts and investments being used for tax evasion.” 

Officials said the protocol would revise the existing US-Switzerland income tax treaty to allow for the exchange of information for income tax purposes “to the full extent permitted by Article 26 of the Organization for Economic Co-operation and Development (OECD) Model Income Tax Convention.”

Article 26 of the OECD Model Income Tax Convention is the “exchange of information” clause that most countries use as their “exchange of information” paragraph in International Tax Treaties.  The change in the US–Swiss Tax Treaty means that the Switzerland definition of “tax fraud” will not control the information that may be given to the US authorities under the US – Swiss Tax Treaty.  In the past, Switzerland would not give information to the US under a tax treaty request unless the information led to “tax fraud” as defined by the Swiss law.  “Tax fraud” under Swiss law is very narrow and does not meet the US standard of “tax evasion” that most US tax treaty requests encompass. 

Article 26 of the OECD Model Income Tax Convention states:

“The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to the Convention.”

Now, the question will become, after the US – Swiss change, what if “foreseeably relevant” in the Switzerland’s opinion.  This may be a whole new area for litigation in Switzerland and the US for the collection of financial information from Switzerland.

Hey, no tax opinon here.

Bill Lowrance