Bank secret or crypto are not 100% proof for tax aversion!

The consequences of tax avoidance through bank secret or crypto

J’emploie un directeur qui réside à l’étranger

Bank secret or crypto are common ways for tax avoidance, but neither is 100% proof. The fruits of globalism beget transparency and cooperation, with OECD having as one of its main priorities to tackle offshore structures.

Some say that Swiss bank secret is already dead, while Swiss financial institutions continue to rely on this feature as their primary pole of attraction of questionable cash. One in eight Swiss banks is caught up in a recent scandal. Not a good statistic of opacity, is it?

Moreover, international pressure and cooperation become evermore important in cross-border investigations, tackling offshores like never before.

Automatic information exchange has indeed proven itself in addressing the bank secret and “lifting the veil”, with a whopping CHF 44 billion being spontaneously declared to avoid harsh penalties, most in fear of this new instrument. The numbers shall grow, the fear shall accumulate and the Swiss banks become ever less attractive.

Of course, lawyers and consultants do not fail to impress with their ever-growing creativity and invention of new and more sophisticated schemes. But so do the authorities, and their forces are now combined as never before, thanks to the considerable cooperation efforts within the OECD framework.


“Authorities become more educated, more informed, and motivated to act”


For Swiss, however, this is not as dangerous at a first glance, but serious suspicions of continuous and repetitive tax avoidance allow the FTA to investigate the bank accounts of the supposed taxpayer, and to retrieve such information regardless the bank secret.

Besides, even if the bank secret applies, or where offshore structures are used, there is never a guarantee that such information shall not be disclosed, including in violation of trust agreements or the law.

As shown in the recent Panama Papers and Pandora Papers, journalists and whistleblowers remain ahead of investigations, but their actions stimulate popular pressure and help authorities.


“Just like any other, a bank secret may eventually be disclosed to public”


While it is unobjectionable that the authorities develop new instruments to tackle evasion schemes related to bank secret, crypto is the new challenge. A $7 trillion tax gap is expected in the next decade as a result, this in U.S. alone, and some refer to crypto as the “new Swiss banks“.

The connection is not unfounded, since Switzerland takes pride in its crypto-valley. While it is only recently that Switzerland has allowed financial reporting in a foreign currency, we might as well see Bitcoin balance sheets in future of Swiss e-commerce.

However, there is some note of optimism.

First, just like the bank secret is not absolutely guaranteed, crypto “is not anonymous, just harder to trace“. Second, the government knows computers too. One such example is the Operation Hidden Treasure launched by the Internal Revenue Service, in conjunction with crypto vendors.

This sets an example to other countries on the possibilities of dealing with the crypto opacity problem.

In this regard, bank secret or crypto are conceptually not too much different from one another.

Skilled financial specialist are just being gradually replaced by technology. But this works both ways. Technological advancements are sought not only by the fraudsters, but as of recent are regarded as “a must” for any authority, and Switzerland is taking up the pace in this regard, although quite slowly, taking its time.


“Tax avoidance with the use of crypto technology can only be tackled with technology”


The never-ending battle between avoidance and investigation shall continue, whether against bank secret or crypto, and both belligerents increase and improve their arsenal like never before. It will be more global, more technological and more severe.

Truly, the risk is only apparent to fraudsters if concealed funds are discovered. But if they are, the adverse material effect is beyond imaginable for Swiss fraudsters. Legally, the authorities’ duty to investigate is offset by the taxpayer’s duty to cooperate.

On one hand, Swiss law abides the concept, according to which, the person who derives rights from a fact bears the burden of proof. Tax-increasing facts are to be proven by the authority and tax-reducing facts by the taxpayer.

On the other, although authorities must be “fully convinced”, it suffices to establish such facts with “bordering on certainty” after having assessed available evidence. It is permissible and often necessary for the authorities to also rely on circumstantial evidence to draw conclusions from it (so-called, natural presumptions).


“Non-declaration is a suitable basis for presumption that these assets originated entirely from untaxed income”.


Hence, it remains up to the appellant to provide sound evidence of the non-taxable source of undeclared funds. That being said, the more concealment tools are used – the harder it becomes to prove otherwise.