Switzerland’s favourable treaty with India

September 3rd, 2010

On Monday, amid much fanfare, Switzerland signed a revised double tax treaty with India, concerning exchange of information between the two jurisdictions (for general background on what tax treaties and TIEAs are, see here.) Recently, we blogged Indian concerns about the OECD’s standard of information exchange, and we have written extensively on the OECD standards themselves, calling them woefully inadequate and noting that they are emphtically not, as the OECD likes to assert, the “internationally accepted standard.”

It may be a sign of the pressures that developing countries are under that India does not seem to have been able to assert and articulate these concerns in the final version of the treaty. Olivier Longchamp from the Berne Declaration has sent us this analysis (for clarity, the Article 26 that he refers to is the article concerning information exchange which stipluates the Catch-22 “on-reqest” information standard):

This is the first time the Swiss authorities have granted such a concession to a major developing country outside OECD. In this regard, it is something we should welcome.

On the other hand, the “Swiss way” of implementing Article 26 is still very restrictive. In fact, the Indian authorities are required to give many details about the taxpayer they want information about: in particular, they must mention in which of the 325 Swiss banks they suspect the taxpayer holds an undeclared account. This, of course, is not easy — because Swiss bank secrecy still forbids bankers from giving out any information about their clients or their accounts.

Last but not least, Switzerland managed to wrest various important concessions in the revised DTA — above all, a most-favoured-nation clause regarding the fiscal treatment of interest, dividends, licences, etc. for Swiss investments in India.These are, of course, far less welcome.”

Alliance Sud and the Berne Declaration issued a joint press release on the issue, noting, among other things, that

“Judging by all the evidence, Switzerland is only prepared to concede on-request information exchange agreements with the economically strongest countries. The poorest countries continue to be excluded, as we have seen with the conventions recently signed with Georgia and Tajikistan.

On-request information exchange is only a feeble weapon in the fight against international tax evasion.

The agreement states that the rate of source taxation on income from licences, payments for technical services, dividends and interest which Swiss-based investors receive from their overseas operations will immediately be reduced if India signs a more advantageous agreement with an OECD country (that comes from the most-favoured-nation clause benefiting Switzerland). These fiscal gifts can cost developing countries dear — possibly more than what is gained through this weak information exchange tool.”

The Berne Declaration estimates that tax-evading assets from developing countries deposited in Switzerland ranges from 362 to 1,467 billion Francs (which currently exchanges with the U.S. dollar at almost exactly 1:1.)

Written by Nicholas Shaxson

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