Yesterday, the Swiss Supreme Court overturned a prior instance Federal Administrative Court decision of earlier this year. The Supreme Court allowed a request for bank information from the Dutch tax authorities essentially on grounds of a mere description of a behavioural pattern.
The decision is notable since it allows for an anonymous group request on the basis of a double tax agreement which had been amended prior to group requests becoming an OECD standard in 2012 and which therefore explicitly required naming the person under examination.
In 2015, the Dutch Tax Administration filed a group request (Request) for information on Dutch tax payers held by Swiss banks.
Among other things, the Request targeted UBS customers resident in the Netherlands who had not provided UBS with evidence of tax conformity despite the bank having written to them and asking them to do so. In other words, the Request constituted a so-called anonymous group request.
The Request was based on the Double Tax Agreement between Switzerland and the Netherlands and its Protocol (DTA-NL), as amended in February 2010 and in force since November 2011. End of October 2011, the DTA-NL was supplemented by a so-called Memorandum of Understanding (MoU) for the purposes of interpreting the DTA-NL.
According to the DTA-NL the requesting state must provide the requested state with information needed to identify a person under examination, “in particular name […] and other particulars facilitating that person’s identification […]”. Whereas the DTA-NL’s relevant provisions do require an interpretation allowing for the widest possible exchange of information they explicitly exclude “fishing expeditions”.
The MoU, too, excludes fishing expeditions but allows for requests to be made without stating the name of a person concerned, provided the requesting state identifies the “person under examination or investigation in another manner than by stating its name and address”.
Federal Administrative Court (FAC) decision of 21 March 2016
The FAC had not allowed the Request. In its carefully motivated decision, the FAC had concluded that an anonymous group request (and that is unquestionably what the Request amounts to) was not permissible where a double tax agreement required the specific naming of a person under examination.
The FAC held in particular, and unambiguously, that there was no scope for the MoU to broaden the clearly stated requirements pursuant to the DTA-NL (including specific identification of a person under examination). The terms of the DTA-NL were found to be clear and not allowing for anonymous group requests.
Supreme Court decision of 12 September 2016
The Supreme Court’s decision was reached yesterday in public deliberation. A motivation in writing is not yet available, publication expected in the next couple of months.
In a summary released on its website, the Supreme Court states that the DTA-NL must be construed so as to allow for information exchange requests without naming a person under investigation, provided always the request in question does not amount to a fishing expedition.
Also, in its summary the Supreme Court explicitly refers to the MoU as providing the basis to construe DTA-NL. That view had been firmly rejected by the FAC in its now reversed decision.
This decision does not come entirely unexpected. It is not the first time the Supreme Court shows itself more generous in terms of exchange of information than its prior instance, the FAC.
It will be interesting to see how the Supreme Court draws the lines between the (wide) criteria on which the Request is based and a fishing expedition. There is little doubt, though, that the threshold is being lowered.
Also, it is worth noting that in this decision the Supreme Court allowed for an anonymous group request under a double tax agreement that had been amended in February 2010, well before the introduction in 2012 of group requests as OECD standard.
In the light of the well-reasoned FAC decision one may assume that the Supreme Court will have had to resort to some exegetical acrobatics to reach its verdict. Some might even view the decision as political.
We would not be surprised to see a good number of states now trying to cast their nets into the waves made by this opening of the floodgates. Whether this decision amounts to equating information exchange and anonymous group requests remains to be seen.