GENEVA: “Switzerland does not grant mutual assistance for the prosecution of fiscal offences that are the subject of investigations by a foreign authority.”(1) This statement in the Federal Department of Justice and Police Guidelines on International Mutual Assistance in Criminal Matters reflects a cornerstone of Swiss policy regarding requests for legal assistance in criminal matters.(2) The policy is based on Article 3(3)(1) of the Federal Act on International Mutual Legal Assistance in Criminal Matters (the Mutual Assistance Act), which – in line with Article 2(a) of the 1959 European Convention on Mutual Assistance in Criminal Matters – states that “a request shall not be granted if the subject of the proceedings is an offence which appears to be aimed at reducing fiscal duties or taxes”.
However, this rule is subject to an important exception, as highlighted by the Federal Criminal Court in an October 14 2015 decision.(3) If a party domiciled in the European Union seeks to avoid tax by artificially shifting turnover (and eventually profits) to Switzerland, mutual legal assistance to prosecute fiscal offences may be granted to the jurisdiction concerned on the basis of the Schengen rules on combating fiscal offences in the field of indirect taxation.(4)
In a request for international judicial assistance in criminal matters, the German prosecutor claimed that three individuals resident in Germany (Parties B, C and D) had transacted business through a Swiss limited liability company, pretending that the company was domiciled in Switzerland. While the company had its statutory seat and registered office in Switzerland, the German authorities submitted that the Swiss domicile was purely fictitious. In fact, the company’s registered office was located at the private apartment of a Swiss resident providing fiduciary services (Party A). No relevant corporate activity had ever taken place in Switzerland; the company was de facto managed by Party B in Germany. The German authorities thus claimed that the company should be deemed a German undertaking that was fully liable to pay corporate tax, profit tax and value added tax (VAT) in Germany; Party B was accordingly charged with fraudulent evasion of these taxes. Further, since Parties B, C and D had – personally or through the intermediary of a German legal entity controlled by them – sold services to the Swiss company and knowingly portrayed such services as rendered abroad for VAT purposes, they also faced prosecution for evasion of VAT.
Party A appealed the decision of the Swiss authorities to grant the German request for judicial assistance and transmit pertinent documents to the German prosecutor. The appeal was mainly based on the argument that the German proceedings concerned fiscal matters and that Switzerland was thus prohibited from providing legal assistance.
