Tax Criminal Law in Switzerland: What is Legal and What is Illegal?

No one likes paying taxes, and the temptation to declare less or not at all is great. However, those who fail to correctly declare their assets and income will be sanctioned under tax criminal law. In our series of articles, we will introduce you to the basic principles of tax criminal law in Switzerland.

Saving taxes is also possible legally

‍Initially, it seems appropriate to differentiate terms, as they have different consequences. Tax avoidance refers to legal methods that result in a reduced tax burden. For example, contributions to a pension fund or the third pillar, which can be deducted from taxable income. Such tax avoidance has no negative consequences, only positive: a legally reduced tax burden. Another term is tax circumvention. According to the Federal Supreme Court, it occurs when "unusual, inappropriate, or bizarre actions are chosen, which appear completely inappropriate under economic circumstances, this approach can only be explained by the intention to save taxes and the unusual approach actually leads to a tax saving."

It is common to rent apartments cheaply to children to declare the lower rental income and not the imputed rental value. Tax circumvention is also not criminally prosecuted; only the evaded taxes are subsequently demanded.

Tax evasion

‍On the other hand, there are punishable tax offenses. The two best known include tax evasion and tax fraud, of which we will discuss evasion hereafter. The legal basis for tax evasion can be found in Art. 175ff. of the Federal Act on Direct Federal Tax (DBG). It occurs when information on income or assets is incomplete, incorrect, or not provided at all. However, there is no forgery of the submitted vouchers. This must happen either intentionally or negligently. Tax evasion also occurs when those liable for withholding tax do not make tax deductions completely or at all, obtain an unlawful refund, or receive an unjustified waiver. It is necessary that too little tax has been paid because of the information provided. Otherwise, it is considered attempted tax evasion. Both attempted and completed tax evasion are classified only as misdemeanors, and a fine is imposed. However, there is the option of penalty-free voluntary disclosure, which either waives or at least mitigates the fine. Attempted tax evasion expires after 6 years and completed after 10 years. After that, no more criminal prosecution can take place.

More on the distinction to tax fraud and other offenses will be provided in the next article.

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