Voluntary tax disclosure

Most foreigners arriving in Switzerland also become tax residents. Exceptions may apply for business travellers and individuals who keep their habitual abode in their home country, so-called international weekly commuters. Tax residents in Switzerland are obliged to file an annual tax declaration in which all worldwide income and assets must be reported. Irrespective of where the assets are based, e.g. foreign bank accounts, stocks, real estate or the value of a foreign business, and irrespective of where the income stems from, e.g. foreign dividends, interests, rental income, all must be declared in the Swiss annual tax declaration.

Needless to say that the Swiss “tax jungle” may appear overwhelming for individuals just arriving in Switzerland and that either income or wealth or both, without any bad intentions, may have been missed to be declared in the Swiss tax return.

Unpenalized voluntary disclosure of income or assets

Since 2010, it has been possible to make a “first” voluntary disclosure of such income and assets to the tax authorities, without any penalties being imposed. The penalties would under normal circumstances range from one-third up to three times of the amount of the unpaid (evaded) taxes. Any unpaid taxes related to such voluntarily disclosed income or asset, including standard late payment interests, are still due when disclosing such income or assets but no penalties will be charged. The statute of limitations is 10 years, so the tax authorities expect any missed income or assets for all relevant years within this period to be reported. According to federal statistics, more than 60’000 individuals have ‘benefited’ from the unpenalized voluntary disclosure option since this became available in 2010.

Introduction of the Automatic Exchange of Information

As of 2017, the Automatic Exchange of Information (AEOI) came into force. This means that the Swiss authorities since then receive information about Swiss tax residents and their foreign investments directly from foreign financial institutions and tax authorities. The first exchange took place for 2018 and the Swiss Federal Tax Administration (FTA) recently announced that they have exchanged information with 75 countries, covering approximately 3.1 million financial accounts. Likewise, Switzerland has received information from abroad on around 2.4 million financial accounts. This year, the FTA expects around 90 countries to be covered by the AEOI. Hence, data is being gathered at this moment and it is only a question of time until the Swiss tax authorities receive the information from the countries participating in the AEOI.

What does this mean for the “unpenalized voluntary disclosure” process?  

Although the Swiss tax authorities claim that any information received under the AEOI process does no longer qualify for the “unpenalized voluntary disclosure” beneficial treatment, it is still recommended to Swiss tax residents, who may have gaps in their reporting for past tax years, to do a voluntary disclosure. Many cantons have a pragmatic approach to imposing penalties, even if they already have the relevant data gathered through the AEOI process. In addition, they have the flexibility to determine on the level of penalties (ranging from one-third to three times the amount of the unpaid tax). A pro-active and constructive cooperation from the taxpayer creates goodwill and, even if penalties are imposed, they may more likely be imposed at the lower end of the range set by law.

In conclusion, we recommend individuals, who may have missed to report certain income items or assets during past years to disclose these in a proactive way with the relevant tax authorities.