The Global Forum on Transparency and Exchange of Information
for Tax Purposes conducts country reviews that assess how
international standards for the exchange of information (EOI)
on request is applied. This 'peer review' is broken down into
1) Phase 1 covers the legal and regulatory
framework for tax administrative assistance on request in the
country concerned; and
2) Phase 2 assesses how this is implemented
in practice. Each country is given an overall rating upon
completion of phase 2.
Switzerland's approach to the EOI for tax purposes has
changed significantly over the past few years. Previously,
Switzerland adopted a very restrictive approach. However, in
2009 it withdrew its reservation to Article 26 of the OECD's
model tax convention, and started to amend its tax treaties to
ensure the EOI is in line with international standards.
The Global Forum published its phase 2 peer review report on
Switzerland on July 26 2016. It was rated as "largely
compliant", with the Global Forum recommending it implement
appropriate reporting mechanisms to effectively ensure the
identification of the owners of bearer shares. With regards to
information requests based on stolen data, it recommended
modifying its law and/or practice to ensure that it can enforce
its obligations under EOI mechanisms. Of the 10 assessment
criteria, only two were recorded as "partly compliant".
As a consequence of these recommendations, Switzerland has
published its draft legislative amendments in response to its
recommendations. These are discussed below.
Phase 2 recommendations
With regard to the transparency of legal entities, the draft
law notes that bearer shares are only permitted if a company's
stock is listed on a stock exchange, or if the bearer shares
are structured as intermediated securities. Also, it will be
punishable to not maintain a shareholder and beneficial owner
(BO) register, and to not report these.
With regards to the EOI, the draft law contains provisions
on the confidentiality of requests, as well as on the
procedural capacity of parties subject to administrative
assistance procedures. The provision on administrative
assistance requests (based on stolen data) is yet to be
clarified. The six measures to be implemented as per the Global
Forum's recommendations include:
1) Conversion of bearer shares into
registered shares. As an alternative to the conversion, bearer
shares can be structured as intermediated securities;
2) Transitional provisions for the
cancellation of outstanding bearer shares;
3) A sanction system for breaches of
4) Maintenance of a register of legal owners
by entities with registered offices abroad (but effective
management in Switzerland);
5) Provision for the EOI on deceased persons;
6) Provision on the confidentiality of the
The proposed law does not provide any additional measures
for the inspection of account details regarding Swiss bank
accounts, or the inspection of company registers. As a
substitute for the latter, in the future, the Swiss Federal Tax
Administration (SFTA) will check the existence of shareholder
and BO registers when carrying out withholding tax (WHT) audits
in order to encourage companies to fulfil their respective
Civil and criminal law amendments
The new provisions address a number of legal areas including
identification of bearer shares, provisions for outstanding
bearer shares, the supervision of stock corporations and
limited partnerships, and information regarding the legal
ownership of foreign companies.
Identification of bearer shareholders
On July 1 2015, new provisions regarding the transparency of
legal entities were passed in Switzerland, implementing the
recommendations of the Groupe d'action
financière. In the case of non-listed companies,
obligations to report on the acquisition of bearer shares
within one month was introduced, with beneficial owners of the
shares now required to report a share acquisition greater than
If a shareholder does not comply with reporting obligations,
their share rights are suspended until reporting obligations
have been fulfilled. Amendments from 2015 also state that
companies are now obliged to keep a register of the direct
holders of the bearer shares as well as of the BO's reported to
Due to the amendments introduced in 2019, the issuance of
bearer shares will only be permitted if a company is listed on
a stock exchange, or if the bearer shares are issued as
intermediated securities (in accordance with the Federal Law on
Intermediated Securities, and deposited with a Swiss
Companies will also have to publish in commercial registers
whether they are listed on a stock exchange, or whether their
bearer shares are structured as intermediated securities.
Participation certificates will also fall under this amendment
to the law. Bearer participation certificates will only be
admissible for non-listed companies if they are structured as
Outstanding bearer shares
The applicable law states that a shareholder's property
rights are suspended if they fail to comply with reporting
obligations within one month of acquiring the shares. However,
if the shareholder notifies the company at a later moment, they
may reassert property rights from that moment.
This late reporting has been criticised as bearer
shareholders can remain anonymous until they wish to assert
their rights against a company. The Global Forum's phase 2
report noted that the Swiss law of 2015 did not sufficiently
ensure the identification of bearer shareholders within the
timeframe noted in law.
As a consequence, the revised law proposal remedies this by
stating the conversion of bearer shares into registered shares
will not take place automatically on the effective date of
entry into force of the new law. Instead, it will apply 18
months after the new law enters into force, unless a company is
listed on the stock exchange or its bearer shares are
structured as intermediated securities. If the company reflects
the last two situations, it must be entered in the commercial
register and no conversion is required.
If the company is not listed, or if the bearer shares are
not structured as intermediated securities, then the board of
directors of a company with bearer shares must invite the
shareholders who have not yet fulfilled their reporting
obligations to comply. Such a notification must mention that
shareholders who fail to comply with their reporting obligation
will permanently lose their rights and their contributions will
fall to the company.
In such a notification, the 18-month period will be
extended. Shareholders with shares that have been automatically
converted from bearer shares into registered shares after 18
months may apply to the courts for registration in the
company's register within five years following the law coming
If a shareholder does not register, their shares will be
cancelled by court order after the expiry of the five-year
period, at the company's request. In such a case, the
shareholder will definitively lose all their rights and the
contributions will be transferred to the company.
Stock corporations and limited partnerships
The Global Forum's report further recommends monitoring the
fulfilment of compliance obligations by stock companies and
limited partnerships regarding the maintenance of shareholder
and BO registers. In addition to the sanction system proposed,
the SFTA will control (in the course of WHT audits) whether
shareholder and BO registers are available.
Notification duty breaches can occur at the level of the
company or at the level of the shareholder. The new sanction
system will cover both. On the one hand, the draft law includes
penalties for reporting obligation breaches. On the other hand,
the new law notes that poor quality registers constitutes a
deficiency in the organisation of the company, which can allow
a shareholder or creditor to request court changes to the
system in place.
Information of foreign company ownership in
According to the Global Forum, if a company is present in
multiple jurisdictions, and is a resident in Switzerland for
tax purposes (e.g. by having effective management or
administration in Switzerland), the company will have
responsibility to ensure that legal ownership information is
However, reporting compliance obligations under Swiss
company law apply only to companies registered in Switzerland.
If information becomes available from companies with their head
office abroad and a Swiss permanent establishment (PE), a legal
basis will be required to collect such information.
In order to implement this recommendation, the Federal Law
on International Administrative Assistance in Tax Matters
(IAATML) stipulates that legal entities with foreign head
offices must keep a register of their legal owners at the place
of their effective administration in Switzerland. The register
must contain their first and last names (or company name), and
the address of the shareholder.
Hereby, the concept of effective management (or effective
administration) corresponds to the definition of effective
management or effective administration used for federal income
Exchange of information amendments
The Global Forum has also examined the implementation of the
EOI process. Switzerland has received three recommendations
that need to be implemented.
Exchange of information on deceased persons
Switzerland must ensure that information on deceased persons
can be exchanged. In the absence of procedural capacity,
administrative assistance cannot be provided for deceased
persons under Swiss law. The same applies to an estate.
In order to be able to provide administrative assistance in
such cases, the SFTA addresses the EOI request to the person's
legal heirs. However, this is only possible if such persons
have procedural capacity under Swiss law.
A further difficulty lies in the fact that the SFTA is not
always successful in finding the legal heirs (e.g. in cases of
group requests). Finally, it is difficult to provide
administrative assistance with respect to legal succession if
the request for administrative assistance is based on the
deceased person's conduct (which is relevant under tax criminal
law), since administrative assistance is only applicable
against the person who is personally responsible for the
In accordance with Article 26, paragraph 1, of the OECD's
model tax convention, competent authorities (CA) of contracting
states exchange information as it is foreseeably relevant for
carrying out the provisions of the tax treaty, or to the
administration or enforcement of the domestic laws.
It is understood that the standard of "foreseeable
relevance" is intended to provide for EOI in tax matters to the
widest possible extent, and at the same time, to clarify that
the contracting states are not at liberty to engage in "fishing
expeditions" (or to request information that is unlikely to be
relevant to the tax affairs of a given taxpayer).
Accordingly, Switzerland's tax treaties state that in the
case of an EOI request, the procedural rules regarding
taxpayers' rights (provided for in the requested contracting
state) remain applicable, but will not lead to the prevention
or excessive delay of the effective EOI. In other words, the
lack of procedural capacity under Swiss law may not lead to the
impossibility of providing administrative assistance under an
international treaty in the case of deceased persons.
In order to solve this issue, the revised law notes that
persons (including deceased persons), special assets and other
legal entities subject to information requests will be given
procedural party status. This is to ensure that administrative
assistance can also be provided in respect of these persons.
The only decisive factor will be whether the information is
likely to be substantial in order to assess the tax situation
of the person(s), special asset or legal entity, to which
administrative assistance has been requested.
For example, if a US estate is the subject of a request, the
planned provision will allow the SFTA to inform the estate of
the administrative assistance procedure. The US law determines
who can exercise the procedural rights of the estate in
administrative assistance procedure (e.g. the administrator of
the estate). The procedural action (e.g. the issuance of a
decision), takes place vis-à-vis the estate.
The latter may act through the person authorised under US law
(e.g. the administrator of the estate) and then file an
In the international context, the term "legal unity" is
understood as a general, open term, and not in the sense of a
precise definition under commercial register law.
Confidentiality regarding requests
Switzerland must ensure that it complies with the
international standards on confidentiality. The OECD model tax
convention notes that administrative assistance procedures
(including the request for administrative assistance itself)
should be treated confidentially, and that only information
that is necessary may be disclosed.
The Global Forum takes the position that the request itself
must always be treated confidentially by the SFTA and must not
be made available.
However, according to Swiss case law, an information request
must be made available to the person who is expected to be
entitled to appeal before the final decision is issued, unless
there is an exception for not doing so.
This is a consequence of the right to inspect files as a
part of the constitutionally guaranteed right to a hearing.
Inspection of the files may only be refused if essential public
interests of the confederation, cantons, and the other party or
interest of an ongoing official investigation require
If a person concerned wishes to exercise their right to
inspect the files, the SFTA gives the requesting state an
opportunity to take a position on the disclosure in advance,
and to assert essential grounds for secrecy with regard to
certain pieces of the file.
The Global Forum has stated that the practice of the SFTA
does not correspond to the international standard, as a request
should generally be treated as confidential, and apart from
public court procedures or court decisions, no exceptions
should be permitted.
Under the new law, grants will only be provided to inspect a
file if the foreign authority agrees. It will be in the
responsibility of the SFTA to determine whether the foreign
authority has agreed or not. If the foreign authority does not
agree, the SFTA will inform the person concerned about the
essential parts of the request and the correspondence.
The person concerned will not be allowed to inspect the
request itself (or any other correspondence). The summarised
information to be provided would allow the person concerned to
express their view on the matter and to contest the decision
Stolen data recommendations
The Global Forum commented in its recommendations that
Switzerland's application of the principle of good faith has
had a significant impact on its information exchange practice.
According to the applicable law, a foreign request will not be
treated by Switzerland if it violates the principle of good
faith. In particular, if it is based on information obtained
through offences punishable under Swiss law.
According to the practice of the SFTA, it does not matter
whether the requesting state obtained such information actively
or passively. The Global Forum considered this practice to be
too restrictive and said it did not conform with the
The Swiss Federal Supreme Court stated in a recent decision
that the unilateral formulation of the application of the
principle of good faith could only be invoked against a
requesting state if:
a) A corresponding reference had been
included in a bilateral treaty or in protocols thereto (i.e.
the requesting state had accepted this reservation); or
b) It was established that the requesting
state had violated the principle of good faith.
A state that buys Swiss bank data in order to use such data
thereafter for a request of administrative assistance shows a
conduct which is not compatible with the principle of good
faith. However, it is possible to treat a request based on
stolen data as long as the requesting state had not purchased
such data in order to use it afterwards for a request for
The question of whether a state has violated the principle
of good faith must therefore be assessed based on the
circumstances of each individual case. For example, according
to the case law of the Supreme Court, an offence of good faith
must be assumed if the requesting state disregards an assurance
If a breach exists, the applicable tax treaty as an
international agreement between Switzerland and the requesting
state will primarily be decisive, and not the domestic IAATML.
Although Switzerland has noted since 2010 in treaty
negotiations that it does not exchange information on requests
based on illegally acquired data, this principle has not been
included in the tax treaties or protocols concluded since
Switzerland and information exchanges
An insufficient grade in a Global Forum report can reduce a
country's credibility in international bodies such as the OECD.
In turn, this affects the ability to represent a country's
interests effectively and credibly, while also impairing the
attractiveness of a country as a location for foreign
Switzerland is therefore motivated to implement the Global
Forum's recommendations to retain the overall mark obtained in
phase 2 in the next country review.
Swiss legislative amendments must enter into force by
October 2019 in order to be taken into account in the next
country review by the Global Forum. The draft law was therefore
published in January 2019, and is subject to the facultative
Based on the assumption that no referendum will be filed,
Switzerland is on track to implement the recommendations by
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