Switzerland started an automatic exchange of financial information and will exchange banking information with Brazil on 2019

08/10/2018

Rodrigo Alexandre Lazaro Pinto is a partner of Fleury, Coimbra & Rhomberg (FCR Law). Rodrigo handles a broad range of tax matters for national and international companies with a focus on tax litigation, tax planning and restructuring.
Rodrigo Minhoto is an associate attorney of FCR Law. Rodrigo´s work is focused on tax litigation and advising Brazilian and foreign clients in various aspects of national tax law.
Fleury, Coimbra & Rhomberg Advogados

The Common Reporting Standard for Automatic Exchange of Financial Account Information (CRS) was enacted by the OECD in 2014 and published in the Model Competent Authority Agreement (MdCAA) for the automatic and mandatory exchange of financial information. The exchange of financial information between countries is considered the most efficient instrument to increase fiscal transparency among jurisdictions.

Brazil has signed the multilateral agreement (MCAA) and will automatically exchange information with nearly one hundred tax jurisdictions, including Switzerland. The CRS (Common Reporting Standard) provides automatic exchange of information to the Treasury considering the standardized and systematic layout of financial data provided by financial institutions. This is an efficient and swift instrument used by tax authorities to identify potential lack of income and assets statements located in other countries.

Brazil and Switzerland have committed to start and perform the first automatic exchange of financial information on 2019 and have already ratified this instrument by law, as well as implemented the CRS (Common Reporting Standard) by regulations.

Brazilian regulations (Normative Instruction RFB no. 1680/2017) are harmonized with Section 2 of the multilateral treaty and imposes the exchange of financial data for Brazilian financial institutions according to the CRS' terms. The above-mentioned regulations set forth procedures for due diligence on the information provided by the financial institutions in order to investigate: (i) the actual tax domicile of the account owner; (ii) relevant information about bank accounts of foreign taxpayers and corporate groups, including trust (iii) passive income from assets held by non-financial entities, and (iv) investments in the financial market, among other information.

Also, the Executive Act Cofis no. 15/2018 implemented the manual for Brazilian banks which includes details about the procedures for the automatic exchange of financial information with the Brazilian Treasury and the filing of the ancillary obligation (e-Financeira) for the exchange of data between the countries signatory of the Multilateral Convention on Mutual Assistance in Tax Matters.

Switzerland has also ratified the CRA's Offshore Tax Informant Program, followed by Federal Decree number 4,331 introducing the automatic exchange of information on financial accounts with Brazil related to OECD transparency agreement of exchange of financial information.

Therefore, CRS allows exchange of financial information between Brazil and Swiss tax authorities regarding the type of investment, interest, information of the actual final beneficiaries of the bank account, types of investments, rates applied, including due diligence to search for complementary information to fill out the ancillary obligation.

In 2018, Switzerland exchanged information on 2 million Swiss accounts from 7.000 institutions (banks, trusts, insurers, etc)1 with AEOI CRS states2, except Cyprus and Romania "as they do not yet meet the international requirements on confidentiality and data security3". Also, the transmission of data to Australia, France, Croatia, Estonia and Poland is delayed, as they could not yet deliver data back due to technical and operational problems.

In 2019, it is expected that the Swiss Treasury will exchange data from 2018 with more states, nearly 80, including Brazil, once "provided these meet the requirements on confidentiality and data security4".

Regarding the exception of bank data secrecy, the Supreme Court of Brazil ruled the Constitutional Lawsuits no. 2390, 2386, 2397 and 2859 and declared constitutional the Article 6 of Complementary Law no. 105/2001 which allows the Brazilian Federal Revenue (IRS) to receive financial data of taxpayers directly from banks without prior judicial authorization. Thus, the Supreme Court considered the commitment of the Brazilian Government related to international cooperation for the exchange of bank information abroad and justified the constitutionality of article 6 of the Complementary Law number 105/2001 by the Treasury's duty to maintain the confidentiality of the information.

Swiss bank secrecy still exists in some areas - Swiss authorities cannot automatically see what citizens have in their domestic bank accounts, for example5. The Federal Tax Administration (FTA) said in October/2018 that it had for the first time exchanged financial account data at the end of September under global standards that aim to introduce an international cooperation policy to investigate potential tax evasion and illicit financial flows.

Thus, taxpayers should be prepared for future discussion regarding how their financial data made available abroad will be treated by the authorities.


 

1 https://www.reuters.com/article/us-swiss-secrecy/era-of-bank-secrecy-ends-as-swiss-start-sharing-account-data-idUSKCN1MF13O
2 Automatic Exchange of Information (AEOI)
3 https://www.efd.admin.ch/efd/en/home/themen/wirtschaft--waehrung-finanzplatz/finanzmarktpolitik/automatic-exchange-of-information--aeoi-.html
4 https://www.reuters.com/article/us-swiss-secrecy/era-of-bank-secrecy-ends-as-swiss-start-sharing-account-data-idUSKCN1MF13O
5 https://www.reuters.com/article/us-swiss-secrecy/era-of-bank-secrecy-ends-as-swiss-start-sharing-account-data-idUSKCN1MF13O