The European Union and US recently signed an agreement over automatic exchange of information relating to tax, further squeezing alleged tax evaders. This article examines the fine print.

The following article is by G Warren Whitaker, of the law firm Day Pitney, in New York City. He is writing about the recently-announced European Union-US agreement around exchange of information relating to tax matters, a further step along the path, so its framers hope, of stamping out tax evasion.

As ever, the devil is in the details in such matters, so Whitaker delves into some of the fine print. Family Wealth Report is grateful for such expert contributions; it does not necessarily share all the views of such contributors and invites readers to respond.
 
On May 27 the European Union and Switzerland signed an agreement providing for automatic exchange of financial account information. Collecting of information on residents of all member states will begin in 2017 and actual exchange of the information gathered in 2018. 

This agreement makes Switzerland subject to the Common Reporting Standards, first announced by the OECD in 2014, which provides for certain banking data regarding residents of each signatory country to be shared with the country of residence. Each signatory agrees that member states will annually receive the name, date of birth, address and tax identification number of each of their residents who has an account in Switzerland. Account balances and other financial data will also be included. 

The US

The US is not a signatory to the CRS, but has already separately compelled Switzerland and most other countries to share information about US residents who have accounts there under the Foreign Account Tax Compliance Act, or FATCA.  Several countries developed the first inter-governmental agreements with the US regulating how FATCA would apply in their countries. In 2013, those countries (France, Germany, Italy, Spain and the UK) announced their intention to exchange FATCA-type information among themselves in addition to exchanging information with the US.

At present, the signatories to the CRS exchange of information are: Albania, Anguilla, Argentina, Aruba, Australia, Austria, Belgium, Bermuda, British Virgin Islands, Canada, Cayman Islands, Chile, Colombia, Costa Rica, Croatia, Curaçao, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Ghana, Gibraltar, Greece, Guernsey, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mauritius, Mexico, Montserrat, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Turks and Caicos Islands, and the UK.

The US has agreed as part of FATCA to share similar information with other countries, although the extent of the information to be provided by the US is not yet clear, i.e., whether entities such as trusts and companies will be pierced and information about their owners and creators be shared, or whether only information regarding accounts in an individual name will be shared. It is probably only a matter of time before information regarding all accounts will be shared with other countries, as they are already required to do with the US.

Some are calling this latest agreement "the end of Swiss bank secrecy." In fact, Switzerland has been under attack for close to a decade by the US Justice Department and the EU for providing a haven for tax evasion, and this agreement is the latest in a series of steps by which Switzerland has been bludgeoned into submission. 

Bank secrecy, once the proudest achievement of the Swiss banking system, has ceased to exist with regard to the other governments that have agreed to CRS. (This does not mean public disclosure of banking information, as long as the governments in question do not leak it). 

A previous justification

At one time, bank secrecy could be justified at least tacitly on moral grounds. People in many parts of the world had reason to fear kidnapping, government corruption and confiscation of assets. Nationalization of assets by governments was feared and in fact occurred in places such as Russia, Germany and Cuba. Western Europeans lived in continuing fear of a communist invasion or an internal revolution. Switzerland and other "offshore" jurisdictions provided a safe and respected haven against these threats.

Some of these dangerous conditions still exist in many developing countries, and residents of those countries have many motives for keeping funds offshore and unreported. However, the relative stability and security of Western Europe the US and Canada, increasingly made tax evasion the primary reason to hide assets offshore. As a result, the justification for Swiss "neutrality" in the economic sphere became less and less tenable with regard to residents of these jurisdictions. Now the final page has been written.

Automatic exchange of information with the EU countries as well as the US, which was inconceivable 10 years ago, will now become a reality.