Switzerland is very clear on the secrecy of bank accounts and the best example of this is the Foreign Account Tax Compliant Act (FATCA) agreement signed by the US with Switzerland
For once it looked like that the black money problem of India had been solved, as far as Switzerland is concerned. Couple of days ago, media reports spoke about how the Swiss government had prepared a list of Indians suspected to have stashed black money in Swiss banks. There was also a mention of the details being shared with the Indian government. This news hogged the headlines till a denial came from the Government of India and also from Switzerland. Mr. Arun Jaitley said New Delhi had not received any official communication from Switzerland but was hopeful that cooperation between the two countries would bear results.
On the other hand, Mario Tuor, spokesman, Swiss Federal Department of Finance, while speaking to a leading daily in UK, expressed surprise at reports in the Indian media about Switzerland preparing a list of Indians suspected of having untaxed funds in Swiss banks, saying the last meeting between the two sides on the issue was held in New Delhi in February and that there had been no developments since then.
Now that the dust seems to have settled on the issue, the age old question has been revived, on the process of obtaining bank account information from Switzerland. For those who believe that a change of government at the center, or a tough stand by the government in New Delhi, will work wonders as far as getting black money information from Switzerland is concerned, are being naïve. Switzerland is very clear on the secrecy of bank accounts and the best example of this is the Foreign Account Tax Compliant Act (FATCA) agreement signed by the US with Switzerland. It is important to note, that FATCA is intended to detect "US persons" who are evading US tax, using financial accounts held outside the United States. Under FATCA, non-US financial institutions would be required to report relevant information to the American tax authorities, specifically the Internal Revenue Service (IRS), about financial accounts held by identified Americans. This is something which India has sought as a country, but has failed to achieve.
Switzerland and FATCA: While Switzerland has signed FATCA with USA, the details of accounts held by Americans in Swiss banks have to undergo various processes before it is reported to the Internal Revenue Service (IRS) of the USA. The steps of reporting accounts to USA are going to be as follows:
1. Banks in Switzerland will send a letter to the Americans holding accounts in Swiss banks, seeking their consent to report account details to the IRS. This means, without consent, no account will be reported to USA.
2. If account holders don’t give their consent to share account details with USA, the account will be considered non-consenting USA account. The bank will be legally obliged to report the quantity of the accounts and the total amount on all “Non-Consenting US Accounts” by the end of January, 2015, without mentioning the identity of the clients concerned.
3. Based upon this information and in accordance with the FATCA agreement, the IRS has the ability to submit a group request for administrative assistance regarding the “Non Consenting US Accounts” to the competent Swiss authority. This means that IRS is asking for account level details.
4. After a request from the IRS is received, the Federal Tax Administration (FTA) will publish the details of the group request in the Swiss Gazette, which will be anonymous. Account holders can check with their bank if their name is part of this group details notification. The account holder will have the right to counter the disclosure and the FTA will decide if the details need to be shared or not, which will again be published as a group request.
5. Even after FTA has finalised the details to be shared with USA, a bank customer will have the right to appeal to the Swiss Federal Administrative Court (FAC). The decision of FAC will be final in this regard.
The process prescribed under FATCA for sharing of information is very cumbersome and shows that Swiss authorities want to protect the privacy of bank account holders. While this kind of process has been set up with USA, it can only be expected that Swiss authorities won’t share relevant information with India easily, especially since there is no FATCA like agreement with India.
While FATCA is just one example, the most important point to note here is, that Swiss law entrenched bank secrecy in 1934, making it a criminal offense to reveal a client's identity. Switzerland over a period of time has become a major tax haven and had around $2.1 trillion in deposits, or 27%, of worldwide offshore wealth according to the Boston Consulting Group. In view of the approach followed by Switzerland and regulations prevailing in the country, it is indeed difficult for India to obtain details from USA. Lots of deliberation and persuasion may be required and the outcome may still be unpredictable.
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Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)
