On 17 July 2018, the Swiss Supreme Court ("Court") rendered a decision on the topic of administrative assistance in tax matters, stolen bank data and the principle of good faith (decision no. 2C_648/2017). The decision determines that the Swiss Federal Tax Administration ("FTA") may exchange information with the Indian tax authorities (Ministry of Finance, "MoF").
The facts concerned information about two Indian taxpayers that the MoF had received from the authorities of the British Virgin Islands. This information was then used by the MoF as the basis for their administrative assistance request to the FTA.
The appellants claimed that the data concerning them had originated from the infamous data theft by Hervé Falciani at the bank HSBC in Geneva in the year 2008. The illegal provenance of the data had not been clearly established by the previous instances, and the Court did not determine whether or not the relevant data were indeed stolen. Notwithstanding this, the Supreme Court decided that, even if the data had been stolen, the MoF's request for administrative assistance does not constitute a violation of the principle of good faith, and that the FTA may thus transfer the data concerning the appellants to the MoF.
Legal reasoning of the Court
Firstly, the Court specified its previous case law and determined that the use of stolen bank data by a requesting state in an administrative assistance request alone was not enough to conclude that a violation of good faith in the sense of Art. 7 lit. c of the Swiss Tax Administrative Assistance Act (TAAA) was given. Rather, the individual circumstances of each case must be taken into account. The Court explicitly determined that an administrative assistance request based on stolen data that the requesting state bought from the data thief would be a clear violation of good faith. In the case at hand, however, the MoF had not bought the stolen data directly from Hervé Falciani, but had received it from another state through administrative assistance channels.
Secondly, the Supreme Court ruled that India – unlike the case concerning France where the Supreme Court ruled that bank data should not be transferred – had not made an explicit declaration to Switzerland that it would not use stolen bank data. According to the Court, neither the MoF's administrative assistance request in the case at hand nor certain joint statements by the Revenue Secretary of India and the Swiss Secretary of Finance can be considered to contain such a promise.
Finally, the Court ruled that the Double Taxation Agreement between Switzerland and India does not oblige the MoF to give an explicit assurance that they did not use stolen data even if the FTA asks for it during the administrative assistance proceedings. Therefore this did not constitute a violation of good faith on the part of the MoF. In any case, the Court repeated its constant case law that the FTA may, based on the principle of confidence in international relations, fully rely on the statements and facts as presented by the requesting state in its administrative assistance request.
The Supreme Court thus rejected the appeal and confirmed that information regarding the appellants could be transferred to the MoF.
Impact of the decision
This decision can justifiably be called a landmark decision on the subject of stolen bank data and the principle of good faith. With the new decision, it is now clear that information exchange requests based on stolen bank data do not per se violate the principle of good faith. In fact, the principle of good faith is only violated if the requesting state previously explicitly confirmed that it would not use stolen data or if other, additional elements exist to justify a violation of the good faith principle.
It is notorious that, in the years following the HSBC data theft, the Indian tax authorities obtained the stolen HSBC bank data from other states, in particular from France, which had obtained it from Hervé Falciani. It is also notorious that the Indian tax authorities submitted numerous administrative assistance requests to the FTA on this basis. This decision will probably pave the way for these requests to be granted.
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