Switzerland recently announced intentions for draft legislation to provide authority for amending existing double taxation avoidance agreements that would bring them in line with the OECD’s standard for exchange of information provisions. The proposal would authorize the use of a unilateral extension to execute the amendments. The amendments would apply the OECD standard to any existing treaty in which the counterparty agrees to exchange tax information with Switzerland upon request.
In addition to the renegotiation of existing tax treaties (currently numbering 69), under the draft legislation Switzerland would also execute new treaties and tax information exchange agreements (TIEAs), and sign the OECD Convention on Mutual Administrative Assistance in Tax Matters. However, Switzerland emphasized that the new policy would cover only information exchange upon request, and would not include spontaneous or automatic exchange.
This draft legislation comes on the heels of another recent Swiss decision to increase transparency and disclosure. Earlier this month, Switzerland announced it will negotiate a Model 1 FATCA agreement with the U.S. that will replace the Model 2 agreement signed in February 2013. Under the Model 1 agreement, instead of the foreign financial institutions (FFIs) reporting directly to the IRS – as is the Model 2 protocol, the FFIs report account information to their own government, which automatically reports the information to the IRS annually. According to some, Switzerland is now feeling internally the international pressure that has been building. One theory is that with 2015 being a Swiss federal election year, politicians do not want to be portrayed as “defenders of tax evaders.”