Law and Human Rights Minister Yasonna Laoly said the MLA could also be used to combat tax crimes so that taxpayers fully complied with tax rules and avoided tax fraud.

It is encouraging to know that Swiss authorities also agreed to apply a retroactive clause in the agreement, which means it can be used to handle criminal acts committed before the agreement was signed and ratified.

The MLA is a legally binding agreement that enables both signatories to assist in criminal matters, which may involve, but not be limited to, tracing, freezing and the confiscation of illicit financial assets that have been moved to the counterpart country.

This agreement, which was signed by Indonesia and Switzerland on Feb. 4, 2019 in Bern is also a great legal tool to seek help for identifying and searching for a person suspected of committing crimes. Bear in mind that this mechanism can be used without waiting for a court verdict to declare someone guilty.

However, several principles under the MLA should be fulfilled by a requesting country. 

First is reciprocity. Like other MLAs, assistance will be granted if the requesting country grants reciprocity.

Second is proportionality exists. Swiss authorities will not provide any information beyond what is necessary to execute the request. The name of a person and his/her assets, for example, will only be given to the extent that he/she is involved in an investigation case being requested.

Third is the dual criminality. Under this principle, if Indonesia is about to request assistance to Switzerland, the Swiss authorities need to ensure that the conduct alleged in Indonesia is considered a criminal act under Swiss law.

This principle is a widely accepted standard in MLAs. However, the concept of a criminal act under Swiss law is narrower than that in any other country, including Indonesia. As a general rule, in the context of tax, legal assistance can be given only in cases involving tax fraud under Swiss law. No assistance will be granted to cases involving tax evasion.

Tax fraud in Switzerland refers to falsified documents, such as ledgers, balance sheets, and profit/loss statements, to evade taxes. The mere failure to declare income in the annual return is only considered tax evasion under Swiss law. Whereas in Indonesia, deliberately failing to declare income is considered a tax crime.

There is a sort of mismatched definition of tax crime between Indonesia and Swiss.

Among notable cases involving Switzerland emerged in 2009 when the United States requested legal assistance to Switzerland pertaining to 4,500 accounts in UBS Bank due to the failure of US citizens to declare income. UBS AG won the case, preventing data from being disclosed by Swiss authorities. The Swiss Federal Administrative Court maintained that such action did not qualify as "tax fraud and the like."

Last, the principle of specialty applies. According to this principle, a requesting country may not use any documents and information obtained through Swiss assistance for prosecution in political, military and fiscal offenses. This means any material of documents and information concerning tax cannot be used to issue tax assessment by the requesting country, even though this material is obtained on the grounds of tax investigation. Failure to meet this principle may result in possible termination of legal assistance by Swiss authorities in the future.

After the tax amnesty in 2016, the Indonesia government has been trying to seize the opportunity to increase taxpayer compliance. International cooperation thus has been strengthened since then to get data and information from other countries. The Indonesian tax authority can use this MLA to search or track a person and his/her assets allegedly hidden in Switzerland.

The ratification of this MLA is part of a continuous effort to obtain  more data and further assistance from the counterpart country. Provided that all principles are fulfilled, Switzerland, which is known as a major financial center in Europe, will assist Indonesia. Through ratification of the MLA, the Indonesian government can send a strong message to fraudsters and tax evaders that Switzerland is no longer a safe haven to hide stolen money.

To sum up, the MLA is indeed a great tool for Indonesia to combat criminal acts, including tax crimes. It is expected that more MLAs will be signed and ratified by Indonesia in the future, especially with other financial hub countries.

However, with regard to our MLA with Switzerland, the government should be careful in safeguarding the principles that Switzerland applies to protect its sovereignty. The narrower concept of tax fraud in the dual criminality principle, which is Switzerland's specificity in executing the MLA, may be a challenge for Indonesia in getting assistance.

 ***

The writer has a master’s degree in international tax from University of Lausanne, Switzerland and is an official at the Finance Ministry. The views expressed are his own.