From 1 January 2012, the tax treaty between Poland and Switzerland authorises the countries to exchange information that may have a major impact on tax enforcement.
For years Switzerland has been well-known for its protection of banking secrecy, and the practical consequences of changes in this area thus attract a great deal of interest. This is particularly important in light of the fact that Polish tax procedure does not guarantee taxpayers a right to challenge admission of evidence obtained through cross-border informational exchange programmes between tax authorities.
The provision added to the Polish-Swiss tax treaty concerning exchange of information is essentially based on the approach developed by OECD. Given the subject matter and the general nature of the approach, it represents only a certain standard, with the content to be fleshed out by the states only at the stage of applying the tax treaty. In other words, even though the wording of the provision concerning exchange of information is similar across various treaties, the practical impact of the provisions may differ considerably depending on such factors as the internal policies of the countries, the bargaining power between them, the existence or non-existence of a common interest in effective exchange of information, and so on.
In the case of the Polish-Swiss treaty, an attempt could be made to identify the potential range of information that may be provided to the Polish authorities by considering the specific wording of the amendments to the treaty, particularly where it differs from the wording in the OECD convention, as well as the Swiss policy on administrative assistance in tax matters (released by the ).
In line with the OECD standard, the amended treaty with Switzerland provides for exchange of information upon “request.” The request from the applicant state must be specific, because exchange is limited to information that is “foreseeably relevant” for effective enforcement of tax law. This limitation is intended to prevent states from conducting “fishing expeditions”—submitting broad requests that might or might not turn up relevant information.
In order to implement the criterion that the information sought be “foreseeably relevant,” the treaty with Switzerland contains specific requirements for information requests. For example, if the Polish authorities seek information about a Swiss bank account of a Polish taxpayer, they must not only indicate the information sought, but also identify such items as the specific bank or other entity in possession of the information and the reason for seeking the information. This approach suggests that the Swiss authorities will interpret this requirement strictly, and thus without a clear indication of how the information will be “foreseeably relevant” to a specific matter the request will probably be denied by the Swiss authorities.
A request for information will also be considered only when the applicant state has exhausted all sources of information available through its internal procedures. Combined with the relevance requirement, this means that requests to the Swiss authorities will typically not occur until the proceeding involving a specific taxpayer has reached a fairly advanced stage, when the Polish authorities have pursued all domestic avenues in order to obtain specific data enabling them to determine the specific additional information they need, why it is needed, and the Swiss entity that is in possession of the information. In some cases, meeting these requirements for exchange of information may prove extremely difficult.
The Swiss policy on exchange of tax information also provides for a clear prohibition against retroactivity, meaning that Switzerland will not provide other countries with information concerning periods prior to the effective date of the relevant treaty provision authorising the exchange of information. Consequently, requests from the Polish authorities concerning periods prior to 1 January 2012 will not be honoured.
Introduction into the tax treaty with Switzerland of provisions concerning exchange of tax information, including information held by banks, is an important step towards assuring transparency in international tax enforcement. Nonetheless, it is clear from the wording of the changes as well as the Swiss policy in this respect that the Polish tax authorities will not obtain free access to all information in Switzerland concerning Polish taxpayers.
Dariusz Wasylkowski and Łukasz Pikus, Tax practice, Wardyński & Partners