Voluntary disclosure: When tax offences are forgiven

I couldn’t help but wonder... is ‘once’ really ‘never’?

No one likes to be told lies or deceived. But while many relationships are ruined faster than you can say ‘divorce lawyer’, the Swiss tax system is somewhat more forgiving. A mistake in your tax return – for example, forgetting to declare an asset – may go unpunished. But in tax matters, as in love, it is important to come clean yourself: with a voluntary disclosure that is not subject to penalties.

We explain how you can avoid punishment for tax offences and why you are better off not taking any chances.  

Just a slip-up: Why tax offenses happen quickly

The hot affair with a second phone, secret meetings in hotels and a hidden double life? Most tax offences cannot be compared to that. The majority of Swiss people do not evade taxes intentionally.

Instead of deliberately withholding information from the tax office, tax errors often happen unconsciously. Misunderstandings arise particularly regarding assets: you may forget about wealth held abroad, fail to declare crypto assets or think that you do not have to declare an inheritance.

If you slip up, Switzerland gives you a second chance: you can make amends for your tax offences by voluntarily disclosing them without penalty. But only once in your lifetime! If your alarm bells are already ringing, simply contact us. As your trusted tax boutique, we will discuss your tax errors discreetly and personally – and we will help you avoid punishment wherever possible.

Cleaning up your act: What is a voluntary disclosure without penalty?

There is no guidebook for infidelity in love: every couple decides for themselves what happens next. Fortunately, voluntary disclosure without penalty is established by law, so you don't have to worry as much about confessing – provided you follow a few rules.

Voluntary disclosure is covered by the Federal Acts on ‘Direkte Bundessteuer’ (DBG) and on ‘Harmonisierung der direkten Steuern der Kantone und Gemeinden’ (StHG). It therefore applies to direct federal tax and the income and wealth tax of the cantons and municipalities.

When a voluntary disclosure without penalty is possible

Only coming clean once the deceit has already been discovered? That is never a good idea – not even when it comes to taxes. Voluntary disclosure must meet certain requirements in order to remain truly exempt from punishment:

1. One-time only: In Switzerland, you can only avoid punishment by making a voluntary disclosure once in your lifetime. (So it's better to submit a professionally completed tax return straight away to avoid any mistakes!)

2. Voluntary: You must submit the disclosure voluntarily – before the tax offence is discovered by the authorities.

3. Completeness: All previously untaxed income and assets must be disclosed.

4. Cooperation: You are obliged to submit all documents and contribute to the investigation – going back up to 10 years.

5. Official voluntary disclosure: The documents must be received with the subject line ‘voluntary disclosure’. It is not sufficient to simply declare previously evaded income or assets in your tax return. You must point out that your previous declaration was incomplete!

Once the voluntary disclosure has been submitted and processed, you must also pay the tax debts in order to truly avoid punishment in the long run. As in love, after a confession, it is important to make amends for mistakes and rebuild trust.

Please note: A normal tax correction does not automatically equate to a voluntary disclosure! As long as your tax return has not been finally assessed, you can submit a correction to the tax office. You can also appeal and correct your return up to 30 days after the final tax assessment.

These tax offences can be disclosed voluntarily

Is harmless flirting already cheating? That's debatable. But merely thinking about buying cryptocurrencies or real estate is certainly not tax evasion. When it comes to income and wealth tax, things get serious when money or assets actually change hands.

The following items are often forgotten when completing tax returns and are therefore frequently disclosed later on:

• Accounts and assets abroad – including your beach house! Thanks to the so-called ‘automatic exchange of information’ (AIA in German), Switzerland can automatically find out about your foreign bank accounts. That's why you should be quick and declare them voluntarily or report them yourself at an early stage!

• Securities, cryptocurrencies, real estate, and other assets that the tax office does not automatically know about.

• Inheritance and gifts that were not included in your tax return.

• Income from secondary employment, including self-employment or employment outside Switzerland.

• • Taxable assets that exceed the withholding tax thresholds. In this case, asubsequent ordinary assessment (NOV in German) is necessary – in Zurich, for example, this applies to taxable assets of CHF 80,000 or more. Many people are unaware of this and only declare their assets in their tax return once their income exceeds CHF 120,000. However, a voluntary disclosure without penalty must be made beforehand: as soon as you realize that you have failed to comply with the mandatory NOV!

It's better to flirt withtaxum AG than with tax evasion: with us, filing your tax return becomes a pleasure you'll never want to do without. And that's without any tax sins. Simply book your initial consultation and see for yourself.

Asking for forgiveness: How voluntary disclosure works

The disclosure must be made voluntarily and entirely, so that you do not have to pay the penalty. We are happy to assist you in submitting your disclosure. Here is a step-by-step guide to requesting forgiveness for your tax offences:

1. We collect all documents that were missing in previous tax returns.

2. We submit the documents to the cantonal tax office as a 'voluntary disclosure.'

3. The tax office checks the documents – depending on the canton, this can take varying amounts of time, up to two years.

4. The additional taxes are assessed and paid by you. Incidentally, in the case of very small amounts, the tax office often waives additional taxation and does not pursue the voluntary disclosure due to its insignificance.

After that, your tax offences will officially be history, but you will also lose your one-time opportunity to make a voluntary disclosure without penalty! It is therefore worth investing in professional tax advice from the start so that you don't end up paying more.

The costs of voluntary disclosure without penalty

A voluntary disclosure is only necessary if you have withheld assets or income. This results in a tax shortfall that you must pay – at least for the last 10 years. If the voluntary disclosure without penalty is successful, you can expect the following costs:

• NO fines for first-time offences

• Additional tax for a maximum of 10 years

• Interest on arrears, varying depending on the canton

• Costs for tax advice

When making a voluntary disclosure without penalty, it is particularly important not to make any further mistakes, as this will result in fines being imposed. This is precisely why we advise you to seek assistance. Professional tax advice does come at a cost, but a fine for tax offences can amount to between a third and three times the amount of additional tax owed in Zurich, for example.

Come clean or keep quiet: How to report your tax errors correctly

Would you rather live with a guilty conscience than face the consequences? That won't make you happy, neither in love nor in tax matters. So before you panic and destroy all the evidence, we have some motivation for you: advantages, pitfalls and the most important tips in a nutshell.

1. Advantages of early voluntary disclosure

Honesty is the best policy. So it is also worth facing up to your own tax offences. Voluntary disclosure without penalty brings you:

• No reputation risk

• Legal certainty and full protection from penalties

• Avoidance of additional costs and unnecessary contact with authorities

• The opportunity to make a clean start - ideally with good tax advice

2. Common mistakes in voluntary disclosure

To take advantage of these benefits, voluntary disclosure must be carefully considered and carried out thoroughly. Avoid the following mistakes:

• Incomplete information that leads to criminal liability

• Delayed action, rendering the voluntary disclosure ineffective

• Incorrect or missing documents that would prove your tax liabilities

• Misunderstandings regarding foreign bank documents, frequently in Germany, the UK, and the USA

3. Important tips to avoid penalties

Of course, these mistakes can be prevented. The following tips for voluntary disclosure without penalty will help you do so. As always, the first tip is the most important:

•  Seek advice early on and use our knowledge to avoid making further mistakes.

• Gather all receipts ahead of time and make sure nothing has been forgotten.

• Work proactively with the tax office and don't wait until you are asked.

• Request complete tax reports from banks abroad in advance.

Better a clear conscience than unclear tax misery

Telling the truth is not always easy, in any relationship. With voluntary disclosure without penalty, Switzerland allows you to correct your mistakes—without punishing you for them. See it as an opportunity to get your taxes in order, now and in the future. The sooner you act, the sooner you can move forward with a clear conscience. As taxum AG , we help you settle your tax debt. And we remain loyal to you so that you don't make any further tax mistakes!

And just like that... your tax sins are forgiven and (almost) forgotten.