Ubs tax evaders still subject to punishment under criminal law?

After publicity about the ‘group request’ of the Netherlands to the Swiss tax authorities, several UBS-account holders opened up about their nondisclosed assets. The question is whether or not they qualify as a ‘discloser’ and are as such indemnified from punishment under criminal law and higher fines. I believe that the majority disclosed within the stipulated period. Below I will explain why I believe this to be the case, and why this example is even stronger as a specific sign that this UBS’er ‘would be caught’, was lacking.

Preview

This UBS-saver, let’s call him Youri*, reported to the tax authorities that he had kept some black money on a bank account in Swiss. When doing so he relied on the (lower) fines that apply to a promptly voluntary improvement. He reported after there was national press coverage about the Dutch group request to the Swiss tax authorities on 27 September 2015.

In my opinion, the court considers the disclosure wrongly as ‘too late’:

1. Youri doesn’t have an ‘objective expectation’ of discovery by the Dutch tax authorities since an Swiss letter addressed to him is lacking;
2. until 12 September 2016, it was a realistic expectation that Switzerland did not exchange such information;
3. the court implicitly judges that every tax evader is too late for disclosure.

* Youri is a fictive name based on the similarity of its sound with the letter U of UBS.

The context

What is the interest? I wrote about this earlier this year in my blog ‘What can the tax evader await by 2018?‘ (in Dutch only).

The importance of a disclosure in time is not so much the ever diminishing reduction of the fines (currently up to 120%), but the criminal ‘escape’ it offers. If the notice is filed on time, then no criminal prosecution is possible for intentional wrong tax declarations (i.e. tax fraud) nor for money laundering or forgery of documents, if directly related.

This year the voluntary disclosure regulation has been abolished. You can however still rely on the voluntary disclosure regulation. The abolishment of the voluntary disclosure regulation only applies for:

– revenue from foreign assets, that has been

– nondisclosed in declarations that have been made from 1 January 2018 onwards.

A notice is on time if it is filed ‘before (s)he knows or reasonably should presume  that the inspector is aware or will be aware of the inaccuracy or incompleteness’ (in Dutch).

The judgement

The court determines that:

• the Dutch group request to the Swiss tax authorities has been covered in the national news on 27 September 2015;
• the notice by Youri was made afterwards, on 4 January 2016;
• Youri therefore shall have been aware of the group request to (all) the Dutch tax evaders with a Swiss UBS-account; and
• thus, there was a real possibility that the tax authorities would detect his UBS-account.

Thus, the court concludes, at the time of his report on 4 January 2016 Youri should have presumed that the tax authorities, because of the group request, would become aware of his UBS-account, as a result of which the notice of disclosure was filed too late.

According to the court, the following circumstances have no bearing on the judgment of ‘no voluntary disclosure’:

• on 4 June 2016 no certainty existed whether or not Switzerland would exchange information;
• Youri didn’t receive a letter of the UBS about the intention to exchange his data in the context of the group request; and
• it also turned out that he didn’t fall within the group request.

In short, the court decides that every UBS-er now ‘reasonably should presume’ that the tax authorities will detect him. Also those who didn’t receive a message from Switzerland and thus didn’t have a specific expectation that the Swiss tax authorities would exchange their data.

Objective expectation of discovery

But what is too late? Is every chance of discovery fatal, or is a little nuance still possible? The Dutch Supreme Court (in Dutch) earlier ruled that:

As long as the “serious possibility” of non-discovery exists, a disclosure has been made on time.

The question thus is whether – at the moment Youri filed his notice in January 2016 – there was a ‘serious possiblity’ that Switzerland wouldn’t exchange the information and therefore the tax authorities wouldn’t become aware of the nondisclosed assets. If the group request qualifies as ‘fishing’ which is an illegitimate way to actually trace tax evaders, no objective expectation on discovery exists.

A timeline:

• after the first notice about the group request in September 2015, the expectation existed that Switzerland would consider the Dutch request as a ‘fishing expedition’ and thus would refuse it on the grounds that it was not specific enough. It should be recalled that the specifications stated that it had to concern:

1. a) Dutch people with
2. b) a balance of a minimum of € 1.500 that
3. c) did not report themselves already.

In November 2015 I wrote that the request should be addressed as scaremongering (in Dutch):

“The request for information by the Dutch Tax Authorities to UBS seems too broad and too vague. The chance is very real that the information gathering will be considered as ‘fishing’ and for that reason the information will not be provided to the Netherlands.“

• on 21 March 2016 the Swiss judge indeed prohibited (in Dutch) the issuing of UBS-data based on the as ‘fishing’ considered request for mutual legal assistance from the Netherlands;
• only on 12 September 2016 the Bundesgericht, as highest court in Switzerland, considered that the group request is no ‘fishing expedition’ after all (in Dutch), so the information may be exchanged nevertheless.

Extra: every tax evader too late?

As an extra the court considers: Youri couldn’t believe that the tax authorities ‘would refrain from further investigation into tax evaders’: “… not decisive is whether the claimant himself – subjectively – would suspect that the defendant would trace his UBS-account, but whether he – objectively – should have reasonably suspected. Claimant did not convincingly argue that he could otherwise believe the defendant [the Dutch tax authorities] would refrain from further investigation into tax evaders at the UBS.”

In other words, the tax authorities could have made a new or additional request? Interpreted very broadly, in the eyes of the court any tax evader will be considered ‘too late’. The tax authorities surely can always, at every bank, in any country, file a request. As by now has also been shown.

However, it must regard an investigation which you may actually expect to take place. Possible future requests or further investigation cannot create ‘objective expectations’.

Concluding

The court considers it decisive that the Dutch group proposal from 27 September 2017 was extensively covered in the national news and that the notice of Youri was filed afterwards. Youri should have known about the news and the risk that he ran of being traced by the tax authorities.

I would dispute this because for the following reasons:

1. Youri was not part of the group request and therefore didn’t receive a letter about the intention to hand over his data to the Netherlands. As a result the curtain has come down for the tax authorities. All of those who were part of the group request have after all been informed in conformity with the Swiss rules. Thus: no letter, no objective expectation. (Subjective) fear is irrelevant;
2. In the period until September 2016 the realistic expectation was that Switzerland would consider the Dutch request as ‘fishing’. This all only changed when the highest judge in Switzerland at a later date permitted the exchange after all. Until that time, the ‘serious possibility’ existed that (all) UBS’ers would not be discovered and – according to the Supreme Court of the Netherlands – disclosure would still be in time;
3. Future requests or investigations at UBS cannot create an ‘objective expectation’.