Swiss Federal Council Proposes Enhanced Due Diligence Procedures

The Swiss Federal Council issued a press release on 5 June 2015 (Link) calling for enhanced due diligence requirements in order to prevent the inflow of untaxed assets. These requirements should apply with regard to clients resident in countries where the future agreements on the Automatic Exchange of Financial Account Information do not apply. They will not apply in relation to clients resident in countries that have signed a Multilateral competent authority agreement (MCAA) with Switzerland. US clients are also included as FATCA is considered to effectively have an MCAA. These due diligence requirements are not applicable to clients who are resident in Switzerland for tax purposes.

For all other clients, a risk-based assessment should be conducted by financial intermediaries when accepting assets in order to effectively determine whether these assets have been duly taxed. The supervisory authorities and the recognized self-regulatory organization will determine in due time the details of the risk-based assessment. In brief, in cases where a risk-based assessment leads to the assumption that the offered assets are untaxed, the financial intermediaries should reject the business relationship if it is a new client. For preexisting clients, if the client offers untaxed assets, this creates the suspicion that the preexisting assets are also untaxed. The financial intermediary shall request proof of tax compliance or regularization of the situation. If none of this takes place in the allocated timeframe the business relations with this client shall be ended unless the proof of tax compliance is impossible to obtain or regularizing the situation is liable to create “unreasonable adverse effects”.

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