The development, which virtually pulls down the famed secrecy wall surrounding Swiss banks, would lead to Switzerland providing all forms of mutual assistance -- exchange on request, spontaneous information sharing, tax examinations abroad, and assistance in tax collection.
Switzerland has been facing intense global pressure to cooperate with overseas authorities to share information about accounts in its Swiss banks, which have long been known to be misused by entities from across the world, including from India, for evading taxes in their local jurisdictions.
Buckling under the international pressure, Switzerland on Tuesday signed OECD's Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The convention, which has now been signed by 58 countries, including India, provides for sharing of information and mutual cooperation among all its signatories.
Paris-based OECD (Organisation for Economic Cooperation and Development), is an international policy-advisory body that has formulates global tax standards to fight tax evasion and concealment of illicit funds.
According to latest official figures released by Swiss National Bank, total funds held by Indians in Swiss banks fell to a record low level of about Rs. 9,000 crore (1.42 billion Swiss francs) at the end of 2012, from about Rs. 14,000 crore (2.18 billion Swiss francs) a year ago.
The overall funds held in Swiss banks by entities from across the world also fell from $1.65 trillion to $1.5 trillion during 2012. Announcing Switzerland's signature to its Multilateral Convention, OECD said it provides the option to undertake automatic exchange while requiring an agreement between the parties interested in this form of assistance.
"With the support of the G20, automatic exchange is becoming the new international standard, and Switzerland adheres to an instrument that will allow it, in due time, to join the jurisdictions that will decide to exchange financial information automatically," it added.
The signing comes after the Swiss Federal Council, the highest policy making authority of the country, approved this Convention on October 9, 2013. OECD secretary-general Angel Gurria said Switzerland's adherence to the Convention will help the country resolve the issues identified in its Peer Review by the Global Forum on Transparency and Exchange of Information.
The Review that found deficiencies in Switzerland's mechanism to deal with global requests for tax information.
Switzerland's Ambassador to the OECD Stefan Fluckiger said: "Switzerland has been committed to complying with international standards in tax matters since March 2009.
"The signing of the Convention confirms Switzerland's commitment to the global fight against tax fraud and tax evasion with a view to safeguarding the integrity and reputation of the country's financial centre," he said.
The signatories to the Convention also include Canada, China, France, Italy, Japan, Korea, Luxembourg, Netherlands, New Zealand, Russian Federation, Saudi Arabia, Singapore, South Africa, UK and the US.
The jurisdictions covered by the Convention through territorial extension include Sint Marteen, Cayman Islands, Montserrat and Turks and Caicos. The sharp decline in Indian money in Swiss banks during 2012 followed a significant increase in the previous year, when such funds had risen for the first time in five years.
In a White Paper on black money tabled in the Indian Parliament last year, the government said that total liabilities of Swiss banks towards Indians have been coming down since 2006 and fell by more than Rs. 14,000 crore during 2006-2010 period.