As the automatic exchange of information entered into force beginning 2017 in Switzerland, the time frame to disclose undeclared assets and income without being punished closes soon.
Individuals who are Swiss tax residents and need to file a tax declaration are under the obligation to report all worldwide income and assets. This is known as a voluntary disclosure. Sometimes, foreign assets remain undeclared for a reason, though often by mistake simply because taxpayers are unaware of the Swiss reporting obligation.
The "unpunished voluntary disclosure"
When voluntarily declaring previously unreported assets for the first time in Switzerland, taxes (and interest) are charged, but there is no additional penalty. This should encourage individuals to rectify their situation, as they come back into compliance without being fined. It is important that the authorities have no knowledge of the undeclared assets. This is because as soon as the authorities start asking questions, it is no longer possible to benefit from the penalty waiver.
Let the experts handle it for you
Per Melberg is a Managing Partner of Exactio Ltd.
The Exactio team is here to support you with professional tax and social security advisory services.
The impact of the automatic exchange of information
With the Automatic Exchange of Information (AEOI) coming into force, Swiss authorities will receive information from foreign financial institutions. The information that will be shared includes account and tax identification numbers, as well as the names, addresses and dates of birth of taxpayers abroad with an account in a country other than the country of origin, and all types of income and account balances. The AEOI is in force in all EU countries, plus an additional 50 countries and some "tax havens" like the Cayman Islands or Bermuda.
When the Swiss authorities receive the first information from participating countries in the second half of 2018, they will likely crosscheck the declared positions. If accounts are reported that were never declared, this qualifies as tax evasion. In such a situation, arrear taxes (up to 10 years back), interest, and a penalty between one third and three times the evaded taxes, can all be levied.
For Switzerland, the AEOI entered into force on 1 January 2017. As a consequence, it was debated if a "spontaneous" voluntary disclosure is still possible after January 2017. Data is being gathered at this moment and it is only a question of time until the Swiss tax authorities will receive the information.
Although one could take the standpoint that the data is already collected (and only the reporting is outstanding) and hence a "spontaneous" declaration is no longer possible, most cantons apply a "generous" interpretation of the relevant law.
Several cantons, like Zurich, state that the AEOI will only give them access to this information the precise moment the exchange happens, i.e. in the year 2018. Therefore, they still accept unpunished voluntary disclosures in the year 2017.
If taxpayers still have undeclared assets abroad, it is high time to report these and benefit from the unpunished voluntary disclosure rules. This disclosure should be done in the year 2017, as it is very likely that this will not be possible in the future.