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Saionton Basu
Saionton Basu

Saionton Basu is Partner & Co-Head India Group, Penningtons Solicitors LLP, London and Global Chair, Multilaw India Practice Group

New Swiss law makes it tough to get account holder information

It seems improbable that India will be able to navigate through this new Swiss instrument with the speed which is often the essence of such investigations.

midst increasing international clamour and persistent kerbing of the celebrated Swiss banking secrecy customs, Switzerland has introduced a new Tax Administrative Assistance Act (TAAC) with effect from 1 February 2013 governing the exchange of information in relation to Swiss bank account holders. This article proposes to examine what, if anything at all, the TAAC will achieve in relation to exchange of information with Indian regulators in relation to Indian tax evaded monies in Swiss bank accounts. The first reading of the TAAC is not encouraging.

The draft TAAC initially confirmed the general principle that administrative assistance will be provided exclusively upon request in individual cases, ruling out applications in relation to a "group of persons" each of whom need not be individually identified. However, under pressure from the Organisation for Economic Co-operation and Development (OECD), the TAAC now provides that whereas a request for assistance should ideally contain the name and address of not only the taxpayer but also the holder of the information (e.g., a bank), other means of identification, such as a bank account number, could be admissible. Whilst this is a positive development, unfortunately, reading further down the TAAC exposes several flaws which will make it difficult to obtain the information.

It is explicitly stated that a request will not be taken up, if it is based on information that was obtained by acts that are punishable under Swiss law, including the illegal acquisition of data (more fashionably referred to as the "fruit of the poisonous tree" doctrine, in lawyer-speak). From a Swiss law point of view, the question of stolen banking data is very delicate, particularly on account of the incident concerning a former employee of HSBC Geneva handing over stolen client data to the French authorities. As also, stolen Swiss bank data purchased by German authorities were passed on to other countries. Based on such experiences, Switzerland has decided that exchange of information will not be granted in case of filched bank data. Herein lies the major stumbling block that Indian regulators are likely to come up against. Once a body of information pertaining to capital in Swiss banks has been placed in the public domain, which an investigating agency in India has acted upon and formed a prima facie view of requiring further investigation, it should be irrelevant that such information was first obtained illegally. The TAAC position has been disapproved by the OECD Global Forum on Transparency. Ironically, several Swiss cantons had relied on illegally obtained data received from the German authorities, to prosecute Swiss tax swindlers. Furthermore, this practice had also been protected by the Swiss Federal Supreme Court (SFSC) in a judgment of 2 October 2007. Accordingly, the dual standards are difficult to fathom from an Indian tax law enforcement perspective.

The TAAC further sets out from whom and how the requested information is to be obtained, who is to be informed of the pending request, and who has a right of participation and appeal. It is noteworthy that Swiss tax authorities may request the owner of the information (typically the bank) to invite the person entitled to appeal domiciled abroad to designate, within a certain deadline, an authorised recipient in Switzerland. Subject to the requesting state's permission, the Swiss tax authority may also inform the person domiciled abroad directly. This is dangerous and may amount to "tipping off" in most other jurisdictions. This is the first time that exchange of information on a government to government bilateral level has allowed for a right of audience to the information holder. Besides the obvious dangers of "tipping off," which could lead to the information request being rendered infructuous on account of further transfers or withdrawals by the time this elaborate administrative process has been completed, the delays in the investigation timelines will be significant.

After having collected the information requested by the foreign state, the Swiss Federal Tax Administration (SFTA), will issue a formal decision, subject to an additional layer of appeal. As a thumb rule, the appeal has a suspensive effect, signifying that the requested information will not be handed over to the requesting state before the final decree comes into force. In the appeal, every manner of argument can be marshalled such as the lack of relevancy of the information requested, the lack of specification of the request, its "fishing expedition" nature, contradictions or omissions in the request, or the fact that the request is based on illegally obtained data. Client data information will be only transmitted to the requesting state if the taxpayer has exhausted all administrative procedural rules, in particular the appeal procedure. Whilst it is still to be tested in a court of law, anyone with some experience of administrative appeals in Switzerland can safely peg the timelines for final disposition of such appeals to several months of rigorous follow-up.

It seems improbable that India will be able to navigate through this new Swiss instrument with the speed which is often the essence of such investigations. The TAAC has a saving provision which provides for a completely separate regime for requests from the US, which are not subject to the TAAC. Perhaps, it is time to consider whether India should negotiate a separate agreement with Switzerland which exempts them from some of the dilatory requirements of the TAAC.

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