Switzerland
This report analyses the implementation of the AEOI Standard in Switzerland with respect to the requirements of the AEOI Terms of Reference. It assesses both the legal frameworks put in place to implement the AEOI Standard and the effectiveness of the implementation of the AEOI Standard in practice.
The methodology used for the peer reviews and that therefore underpins this report is outlined in Chapter 2.
Overall findings
AEOI legal framework
Switzerland’s legal framework implementing the AEOI Standard is in place but needs improvement in order to be fully consistent with the requirements of the AEOI Terms of Reference. While Switzerland’s international legal framework to exchange the information with all of Switzerland’s Interested Appropriate Partners (CR2) is consistent with the requirements of the AEOI Terms of Reference, its domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1) has deficiencies significant to the proper functioning of elements of the AEOI Standard. More specifically, Switzerland provides for jurisdiction-specific Non-Reporting Financial Institutions and Excluded Accounts that do not meet the requirements of the AEOI Standard.
Overall determination on the legal framework: In Place But Needs Improvement
Effectiveness of AEOI in practice
Switzerland’s implementation of the AEOI Standard is on track with respect to the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice. This includes ensuring Reporting Financial Institutions correctly conduct the due diligence and reporting procedures (CR1) and exchanging the information in an effective and timely manner (CR2). Switzerland is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
Overall rating in relation to the effectiveness in practice: On Track
General context
Switzerland commenced exchanges under the AEOI Standard in 2018.
In order to provide for Reporting Financial Institutions to collect and report the information to be exchanged, Switzerland:
enacted the Federal Act of 18 December 2015 on the International Automatic Exchange of Information in Tax Matters; as amended on 9 October 2020;
introduced the Ordinance of 23 November 2016 on the International Automatic Exchange of Information in Tax Matters; as amended on 9 October 2020;
made reference to the Federal Act of 12 December 2014 on the Implementation of the Revised FATF Recommendations of 2012 for the purposes of the identification of Controlling Persons under the AEOI Standard.
Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 January 2017. With respect to Preexisting Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts by 31 December 2017 and on Lower Value Individual Accounts and Entity Accounts by 31 December 2018.
Following the initial Global Forum peer review, Switzerland made various amendments to its legislative framework to address issues identified, the last of which will be effective from 1 January 2021.
With respect to the exchange of information under the AEOI Standard, Switzerland:
is a Party to the Convention on Mutual Administrative Assistance in Tax Matters and activated the associated CRS Multilateral Competent Authority Agreement in time for exchanges in 2018;
put in place two bilateral agreements.1
Table 1 sets out the number of Financial Institutions in Switzerland that reported information on Financial Accounts in 2021 as defined in the AEOI Standard (essentially because they maintained Financial Accounts for Account Holders, or that were related to Controlling Persons, resident in a Reportable Jurisdiction). It also sets out the number of Financial Accounts that they reported in 2021. In this regard, it should be noted that Switzerland requires the reporting of Financial Accounts based on a prescribed list of exchange partners and some accounts may be required to be reported more than once (e.g. jointly held accounts or accounts with multiple related Controlling Persons), which is reflected in the figures below. These figures provide key contextual information to the development and implementation of Switzerland’s administrative compliance strategy, which is analysed in the subsequent sections of this report.
Table 2 sets out the number of exchange partners to which information was successfully sent by Switzerland in the past few years (including where the necessary frameworks were in place, containing an obligation on Reporting Financial Institutions to report information, but no relevant Reportable Accounts were identified). These figures provide key contextual information in relation to Switzerland’s exchanges in practice, which is also analysed in subsequent sections of this report.
In order to provide for the effective implementation of the AEOI Standard, in Switzerland:
the Federal Tax Administration (the tax authority) has the responsibility to ensure the effective implementation of the due diligence and reporting obligations by Reporting Financial Institutions and for exchanging the information with Switzerland’s exchange partners;
technical solutions necessary to receive and validate the information reported by Reporting Financial Institutions were put in place with an AEOI reporting application which allows for CRS XML Schema submissions via a web portal, web service server-to-server transmission, and an online form for manual submission; and
the Common Transmission System (CTS) is used for the exchange of the information, along with the associated file preparation and encryption requirements.
It should be noted that the review of Switzerland’s legal frameworks implementing the AEOI Standard concluded with the determination that Switzerland’s domestic legal framework is In Place But Needs Improvement and its international legal framework is In Place. This has been taken into account when reviewing the effectiveness of Switzerland’s implementation of the AEOI Standard in practice.
Findings and conclusions on the legal frameworks
The detailed findings and conclusions on the AEOI legal frameworks for Switzerland are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Domestic legal framework: Jurisdictions should have a domestic legislative framework in place that requires all Reporting Financial Institutions to conduct the due diligence and reporting procedures in the CRS, and that provides for the effective implementation of the CRS as set out therein.
Determination: In Place But Needs Improvement
Switzerland’s domestic legislative framework is in place and contains most of the key aspects of the CRS and its Commentary requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures, but it needs improvement in relation to the scope of Reporting Financial Institutions required to report information (SR 1.1), and the scope of Financial Accounts required to be reported (SR 1.2).
More specifically, Switzerland provides for categories of jurisdiction-specific Non-Reporting Financial Institutions and Excluded Accounts that do not meet the requirements of the AEOI Standard.
SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.
Switzerland has defined the scope of Reporting Financial Institutions in its domestic legislative framework in a manner that is largely consistent with the CRS and its Commentary. However, deficiencies have been identified. More specifically, Switzerland provides for two categories of jurisdiction-specific Non-Reporting Financial Institutions that do not correspond to any of the categories of Non-Reporting Financial Institutions foreseen in the AEOI Standard. The scope of Reporting Financial Institutions, including the provision on Non-Reporting Financial Institutions is material to the proper functioning of the AEOI Standard.
Switzerland should amend its domestic legislative framework to remove two categories from its jurisdiction-specific list of Non-Reporting Financial Institutions as they do not correspond to any of the categories of Non-Reporting Financial Institutions foreseen in the AEOI Standard. The entries are: i) associations that pursue a non-commercial purpose, and ii) foundations that pursue a public, charitable or non-material purpose.
SR 1.2 Jurisdictions should define the scope of Financial Accounts and Reportable Accounts consistently with the CRS and incorporate the due diligence procedures to identify them.
Switzerland has defined the scope of the Financial Accounts that are required to be reported in its domestic legislative framework and incorporated the due diligence procedures that must be applied to them in a manner that is largely consistent with the CRS and its Commentary. However, deficiencies have been identified. More specifically, Switzerland provides for three jurisdiction-specific Excluded Accounts which are not in line with the requirements of the AEOI Standard. Two of the Excluded Accounts do not correspond to any of the categories of Excluded Accounts in the AEOI Standard. The capital contribution accounts have some similarity to escrow accounts, but do not relate to the sale, exchange or lease of real or personal property and do not have sufficiently similar characteristics to the requirements nor to ensure that these accounts pose a low risk of being used to evade tax. The scope of Financial Accounts, including the provision of Excluded Accounts, is material to the proper functioning of the AEOI Standard.
Switzerland should amend its domestic legislative framework to remove three entries from its jurisdiction-specific list of Excluded Accounts as they do not meet the requirements. The entries are: i) accounts of associations that pursue a non-commercial purpose; ii) accounts of foundations that pursue a public, charitable or non-material purpose; and iii) capital contribution accounts.
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
Switzerland has incorporated the reporting requirements in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.4 Jurisdictions should have a legislative framework in place that allows for the enforcement of the requirements of the CRS in practice.
Switzerland has a legislative framework in place to enforce the requirements in accordance with the CRS and its Commentary.
CR2 International legal framework: Jurisdictions should have exchange relationships in effect with all Interested Appropriate Partners as committed to and that provide for the exchange of information in accordance with the Model CAA.
Switzerland’s international legal framework to exchange the information is in place, is consistent with the Model CAA and its Commentary and provides for exchange with all of Switzerland’s Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from Switzerland and that meet the required standard in relation to confidentiality and data safeguards) (SRs 2.1 – 2.3).
SR 2.1 Jurisdictions should have exchange agreements in effect with all Interested Appropriate Partners that permit the automatic exchange of CRS information.
Switzerland has exchange agreements that permit the automatic exchange of CRS information in effect with all its Interested Appropriate Partners.
SR 2.2 Such an exchange agreement should be put in place without undue delay, following the receipt of an expression of interest from an Interested Appropriate Partner.
Switzerland put in place its exchange agreements without undue delay.
SR 2.3 Jurisdictions should ensure that the exchange agreements in effect provide for the exchange of information in accordance with the requirements of the Model CAA.
Switzerland’s exchange agreements provide for the exchange of information in accordance with the requirements of the Model CAA.
Assessed jurisdiction’s comments on the assessment of its legal frameworks
Switzerland would like to express its general appreciation for the work of the Global Forum and reiterates that it takes its commitment to implement the AEOI Standard according to the Global Forum’s recommendations very seriously. Following the initial Global Forum peer review, Switzerland made various amendments to its legislative framework to address the issues identified.
Switzerland takes note of the remaining recommendations set out under SR 1.1. and 1.2., but is convinced that the entities and accounts concerned have a very low risk of being misused for tax evasion, especially as the legal framework contains strict requirements that significantly reduce or exclude the danger of abuse, which is therefore of a theoretical nature. Nonetheless, Switzerland understands the reasons for the recommendations in the context of the applicable standard.
Switzerland would like to highlight that the treatment of the concerned entities and accounts will be discussed as a part of the OECD’s review of the AEOI Standard with first discussions starting in late October 2020. Regarding the treatment of non-profit entities, the OECD Secretariat has already submitted a specific proposal for the review of the AEOI Standard. This proposal reflects Switzerland’s concerns and would take into account four recommendations on SR 1.1 and SR 1.2 regarding non-commercial associations and charitable foundations. As regards capital contribution accounts, it is necessary to await the outcome of the discussions.
As long as the discussions of the issues raised as part of the OECD’s review of the AEOI Standard have not taken place, the question whether or not the entities and accounts aforementioned are exempt from the reporting requirements should be left open and should not prejudice Switzerland’s legal determination.
Findings and conclusions in relation to effectiveness in practice
The detailed findings and conclusions in relation to effectiveness in practice of AEOI for Switzerland are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
Switzerland’s implementation of the AEOI Standard is on track with respect to ensuring that Reporting Financial Institutions are correctly conducting the due diligence and reporting procedures and are therefore reporting complete and accurate information. This includes ensuring effectiveness in a domestic context, such as through having an effective administrative compliance framework and related procedures (SR 1.5), and collaborating with exchange partners to ensure effectiveness (SR 1.6). Switzerland is encouraged to continue its implementation process to ensure its ongoing effectiveness.
SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account. This includes having in place:
an effective administrative compliance framework to ensure the effective implementation of, and compliance with, the CRS. This framework should:
be based on a strategy that facilitates compliance by Reporting Financial Institutions and which is informed by a risk assessment in respect of the effective implementation of the CRS that takes into account relevant information sources (including third party sources);
include procedures to ensure that Financial Institutions correctly apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions;
include procedures to periodically verify Reporting Financial Institutions’ compliance, conducted by authorities that have adequate powers with respect to the reviewed Reporting Financial Institutions, with procedures to access the records they maintain; and
effective procedures to ensure that Financial Institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures;
effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions;
strong measures to ensure that valid self-certifications are always obtained for New Accounts;
effective procedures to ensure that each, or each type of, jurisdiction-specific Non-Reporting Financial Institution and Excluded Account continue to present a low risk of being used to evade tax; and
effective procedures to follow up with a Reporting Financial Institution when undocumented accounts are reported in order to establish the reasons why such information is being reported.
In order to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, Switzerland implemented all of the requirements in accordance with expectations. The key findings were as follows:
Switzerland implemented an overarching strategy to ensure compliance with the AEOI Standard developed after conducting a risk assessment that took into account a range of relevant information sources, such as the information reported by Financial Institutions, information from the financial market regulator and research conducted using publicly available information. Switzerland’s compliance strategy facilitates compliance and incorporates a credible approach to enforcement. Switzerland intends to keep its compliance strategy and risk assessment under review to ensure its effectiveness on an ongoing basis.
Switzerland has worked effectively to understand its population of Financial Institutions, including relevant non-regulated entities, utilising various relevant information sources, such as lists of regulated entities, the Foreign Financial Institution list for FATCA purposes and information from trust and company service providers. Switzerland is taking action to ensure that Reporting Financial Institutions are classifying themselves correctly under its domestic rules and reporting information as required. Switzerland intends to keep its understanding of its Financial Institution population up to date on a routine basis.
The institution responsible for implementing Switzerland’s compliance strategy appears to have the necessary powers and resources to discharge its functions. With respect to resourcing, Switzerland has assigned the equivalent of around six full time auditors to monitor and ensure compliance by Reporting Financial Institutions. Switzerland also has additional AEOI and IT staff who help implement the compliance strategy and which have access to IT systems and tools to conduct risk assessments. Overall, they appear to have effectively implemented an operational plan to verify compliance with the requirements, incorporating appropriate compliance activities.
It appears that Switzerland effectively enforces the requirements, including through the inspection of records of Reporting Financial Institutions in both desk-based and onsite audits and the application of dissuasive penalties and sanctions for non-compliance. It also appears that Switzerland is ready to take effective action to address circumvention of the requirements if such circumvention is detected, and that action is being taken to ensure self-certifications are obtained as required and to follow up on undocumented accounts.
Switzerland will also keep its jurisdiction-specific lists of Non-Reporting Financial Institutions and Excluded Accounts under review to ensure they continue to pose a low risk of being used for tax evasion purposes.
Switzerland has two categories of Non-Reporting Financial Institution that have been recommended to be removed from its jurisdiction-specific list of Non-Reporting Financial Institutions and three entries of Excluded Accounts that have been recommended to be removed from its jurisdiction-specific list of Excluded Accounts.
Table 3 provides a summary of the specific activities undertaken, or that are planned to be undertaken, in relation to each of the key parts of the framework described above.
With respect to the Financial Account information collected and sent by Switzerland, the presence of the key data points of the Tax Identification Numbers and dates of birth appeared to be in line with most other jurisdictions, as did the level of undocumented accounts.
More generally, the majority of the exchange partners that received a significant number of records from Switzerland indicated that they achieved a success rate when matching the information received from Switzerland with their taxpayer database that was broadly equivalent to, or better than, what they usually achieve.
Based on these findings it was concluded that Switzerland is fully meeting expectations in ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures. Switzerland is encouraged to continue its implementation process accordingly.
SR 1.6 Jurisdictions should collaborate on compliance and enforcement. This requires jurisdictions to:
use all appropriate measures available under the jurisdiction’s domestic law to address errors or non-compliance notified to the jurisdiction by an exchange partner; and
have in place effective procedures to notify an exchange partner of errors that may have led to incomplete or incorrect information reporting or non-compliance with the due diligence or reporting procedures by a Reporting Financial Institution in the jurisdiction of the exchange partner.
In order to collaborate on compliance and enforcement, Switzerland implemented all of the requirements in relation to issues notified to them (i.e. under Section 4 of the MCAA or equivalent) in accordance with expectations. In particular, Switzerland received a notification from one partner and successfully processed it in a timely manner, resolving the issues raised. Switzerland also notifies its partners effectively of errors or suspected non-compliance it identifies when utilising the information received.
Based on these findings it was concluded that Switzerland is fully meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures. Switzerland is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
CR2 Effectiveness in practice: Jurisdictions should exchange the information effectively in practice, in a timely manner, including by sorting, preparing, validating and transmitting it in accordance with the AEOI Standard.
Switzerland’s implementation of the AEOI Standard is on track with respect to exchanging the information effectively in practice, including in relation to sorting, preparing and validating the information (SR 2.4), correctly transmitting the information in a timely manner (SRs 2.5 – 2.8) and providing corrections, amendments or additions to the information (SR 2.9). Switzerland has shown improvement over time and is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).
Two exchange partners highlighted particular issues with respect to preparation and format of the information sent by Switzerland (representing 3% of its partners). These generally related to referencing issues in relation to record errors. More generally, three (or 4%) of Switzerland’s exchange partners reported rejecting more than 25% of the files received, of which none reported rejecting more than 50% of files received, due to the technical requirements not being met. This is now broadly in line with the general experience of other jurisdictions. It was noted that Switzerland has already successfully addressed all of the issues.
Based on these findings it was concluded that Switzerland is fully meeting expectations in relation to sorting, preparing and validating the information. Switzerland is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.5 Jurisdictions should agree and use, with each exchange partner, transmission methods that meet appropriate minimum standards to ensure the confidentiality and integrity of the data throughout the transmission, including its encryption to a minimum secure standard.
In order to put in place an agreed transmission method that meets appropriate minimum standards in confidentiality, integrity of the data and encryption for use with each of its exchange partners, Switzerland linked to the CTS.
Based on these findings it was concluded that Switzerland is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. Switzerland is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.6 Jurisdictions should carry out all exchanges annually within nine months of the end of the calendar year to which the information relates.
Feedback from Switzerland’s exchange partners did not raise any concerns with respect to timeliness of the exchanges by Switzerland and therefore with respect to Switzerland’s implementation of this requirement.
Based on these findings it was concluded that Switzerland is fully meeting expectations in relation to exchanging the information in a timely manner. Switzerland is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.7 Jurisdictions should send the information in accordance with the agreed transmission methods and encryption standards.
Feedback from Switzerland’s exchange partners did not raise any concerns with respect to Switzerland’s use of the agreed transmission methods and therefore with Switzerland’s implementation of this requirement.
Based on these findings it was concluded that Switzerland is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. Switzerland is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.8 Jurisdictions should have the systems in place to receive information and, once it has been received, should send a status message to the sending jurisdictions in accordance with the CRS Status Message XML Schema and the related User Guide.
Feedback from Switzerland’s exchange partners did not raise any concerns with respect to Switzerland’s receipt of the information and therefore with Switzerland’s implementation of these requirements.
Based on these findings it was concluded that, Switzerland is fully meeting expectations in relation to the receipt of the information. Switzerland is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.9 Jurisdictions should respond to a notification from an exchange partner as referred to in Section 4 of the Model CAA (which may include Status Messages) in accordance with the timelines set out in the Commentary to Section 4 of the Model CAA. In all other cases, jurisdictions should send corrected, amended or additional information received from a Reporting Financial Institution as soon as possible after it has been received.
Switzerland has responded to a notification and provided corrected, amended or additional information in a timely manner and no such concerns were raised by Switzerland’s exchange partners and therefore with respect to Switzerland’s implementation of these requirements.
Based on these findings it was concluded that Switzerland is fully meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended or additional information. Switzerland is encouraged to continue to ensure the ongoing effectiveness of its implementation.
Note
← 1. With Hong Kong (China) and Singapore.