Switzerland suspends the exchange of tax information: What to expect

19 September 2022
Tax Messenger
On 16 September, Swiss regulators announced that the exchange of tax information with Russia would be suspended. The temporary suspension affects all forms of tax information exchanged with Russia, i.e.:
  • Automatic exchange of information on financial accounts and reports
  • Exchange of information on request
  • Spontaneous exchange of information

The suspension of information exchange for individuals largely affects two areas:
  • Currency regulation
  • Controlled foreign companies
In terms of currency regulation, the suspension of automatic information exchange for individual Russian residents for purposes of currency control means that Switzerland will be included in the list of countries that do not automatically exchange information with Russia. This, in turn, means that a much smaller list of currency transactions will be permitted on accounts in Swiss banks. It should be noted that after the UK suspended the automatic exchange of account information with Russia, the Russian tax authorities made an increased number of requests concerning transactions on UK accounts in the course of tax audits. Thus, when the moratorium on tax control reviews ends or is canceled, we expect the Russian tax authorities to show greater interest in transactions on accounts in Swiss banks. Fines for violations of currency law vary from 20% to 40% of the amount of an illegal currency transaction. Additionally, the use of funds credited to an account in violation of currency control might be also regarded as a new illegal currency transaction.

As far as controlled foreign companies are concerned, the suspension of automatic information exchange for individual Russian tax residents who are controlling persons of companies in Switzerland means that Switzerland will be included in the list of countries (territories) that do not exchange tax information with Russia, approved by the federal executive body responsible for tax control and oversight. This, in turn, means that Swiss controlled foreign companies will be unable to apply a number of tax exemptions regarding CFC profit, i.e.:
  • Exemption for the effective rate
  • Exemption for nature of business (for banks and insurance institutions)
  • Exemption for issuers of publicly traded bonds

Moreover, an additional analysis might be necessary with respect to need to audit the financial statements of a Swiss company for Russian tax purposes.

Actions to take

In view of these changes, we will be glad to discuss the potential currency control risks and the tax implications for controlled foreign companies.

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