Swiss govt agrees to share data on tax evasion

Renegotiated tax treaty to relax banking secrecy laws.

The Swiss government has agreed to loosen its banking secrecy laws and share data on tax evasion cases that India may be pursuing, as part of a renegotiation of the Double Taxation Avoidance Agreement (DTAA) that the two countries signed in 1995.

Such a reformulated tax agreement will help tighten the legal noose on tax evaders secreting their money abroad. Under present Swiss law, foreign-held accounts are protected unless there is evidence of proceeds from drugs or bribes.

Confirming that they have received the request to renegotiate the DTAA, Swiss Ambassador Philippe Welti, however, told Business Standard that his government would share tax evasion data “on specific request by the government”.

This means India will be able to seek details of bank accounts kept by citizens who are believed to have evaded taxes in India and deposited the money in overseas bank accounts. A “roving” or “fishing” enquiry is not possible.

Under the existing Indo-Swiss DTAA information on the Swiss bank deposits of Indian residents was not to be revealed under any circumstances.

Earlier this year, however, the Indian government filed an affidavit with the Supreme Court saying it had approached the Swiss government to renegotiate the 1995 DTAA. The affidavit was filed in response to a public interest litigation saying the Centre did not take adequate steps to get back illegal money kept abroad by Indian citizens.

The affidavit was filed after Switzerland agreed to comply with the Organisation for Economic Cooperation and Development’s model tax convention in March 2009, which meant jettisoning its banking secrecy laws under certain circumstances. Switzerland currently has over 70 DTAAs in the pipeline to be renegotiated as a result of the tax convention.

In the past, Swiss authorities refused to share bank details under the DTAA, saying that such information concerned the enforcement of India’s tax laws and not Switzerland’s. For example, when the income tax department sought to verify the contents of bank documents seized from racehorse owner Hassan Ali Khan, who has been accused of depositing tax-evaded money in UBS, the Swiss authorities declined to provide the information.

Countries like Switzerland and other known tax havens finally agreed to comply with OECD’s tax convention after a group of 20 nations which constitute more than 85 per cent of the world’s output (G 20), threatened to take action against uncooperative nations.

“In Switzerland, tax evasion is also illegal but is normally only punishable as an offence, ie with a fine,” Welti said, reiterating that Swiss laws remain tough on cases like criminal and terrorist money.

India has signed DTAAs with more than 70 nations. Twenty-nine of these are classified by OECD as jurisdictions that have substantially complied with international tax standards.