The US Tax Treaty and Swiss Tax Treaties
As a visitor to Switzerland, your US tax treaty is a vital issue. Here are some details about it.
If you are a US citizen, you need to have a tax treaty with Switzerland. This has a direct bearing on the taxation of your US income. A major part of it is discussed in the following paragraphs.
A tax treaty with Switzerland is mutually beneficial for both countries. It is normally based on reciprocity rules, which makes it compulsory for Switzerland to pay its fair share of taxes. For the US taxpayer, it means that Switzerland needs to comply with US laws so as to be able to bring home the tax revenues.
To bring Switzerland into compliance with US tax law, the Swiss government enacts an internal revenue code and keeps all Swiss taxation information in a computer database that can be accessed by any US taxpayer, should he or she so choose. The Swiss government also keeps its records of tax laws under control as, it is fearful that it might leak out to the public.
Both countries are also bound by their respective tax treaties which governs the exchange of information between them. The tax treaties have a major bearing on the taxation of US citizens in Switzerland.
Since the internal revenue code is unique to Switzerland, the Swiss government must abide by it. In addition, Switzerland is bound by an agreement to keep no information about its internal affairs, such as tax matters, secret.
It is in the US interest that all of the internal affairs in Switzerland be transparent and not be leaked to the public. In order to achieve this objective, the US government’s Internal Revenue Service (IRS) initiates investigations and audits of Swiss accounts and companies.
Now, while an audit of accounts is being carried out, it is not unusual for Swiss officials to claim the audit is not revealing the internal affairs of the country. In other words, the Swiss government is claiming that it is exempt from providing information that might jeopardize its secrecy https://lawsupport.ch/en/office-in-switzerland/virtual-office-in-switzerland/ laws. This is contrary to all the principles of transparency and accountability.
After the Internal Revenue Service has released its findings, it is likely the Swiss government will claim it has complied with the internal affairs and will comply with any US taxpayer. This is exactly what the Swiss government has done with respect to the accounts of Americans. We would also expect the Swiss government to act in this manner.
Switzerland has the right to conduct an audit of US citizens, as it is bound by an agreement not to disclose the internal affairs of Switzerland. However, the Internal Revenue Service should be allowed to proceed with its investigation and should be allowed to provide US taxpayers with access to its audits and audit reports.
The Internal Revenue Service’s desire to file a criminal case against Switzerland for violating the bilateral tax treaty is merely a politically motivated attempt to embarrass and obstruct the US taxpayer. The fact that Switzerland refuses to cooperate with US taxes does not mean it is doing anything wrong.
On the contrary, Switzerland is properly carrying out its obligations as laid down in the tax treaty. The Internal Revenue Service is simply using the Internal Revenue Code against Switzerland.