Jan 2010:
The Swiss Government will try to renegotiate its landmark tax treaty with the United States, in the hope of heading off a national referendum on Switzerland’s banking secrecy laws.
The decision has increased the risk that UBS, the Swiss bank, could be sued by America’s Internal Revenue Service (IRS). The Swiss Department of Justice said that it would continue talks with the US about the treaty “to explain the situation from its perspective”.
The announcement came after a decision by a court in Switzerland on Friday to halt the country’s handover of names of more than 4,000 Americans suspected by the IRS of avoiding US tax by hiding money in offshore accounts.
Eveline Widmer-Schlumpf, the Swiss Justice Minister, said that she could not rule out “formal or material changes to the treaty”, which America has been touting as a triumph in its crackdown on offshore tax fraud. Lawyers said that the US was likely to be intransigent in the face of Swiss attempts at renegotiation.
Another option, the minister said, would be to ask the Swiss parliament to approve changes to the law, allowing Switzerland to co-operate on less serious cases of tax evasion. This would mean that the country could meet the terms of the US treaty. Opposition political parties previously have threatened to oppose any attempt to change the law and to put the issue to a national referendum.
Polls suggest that Swiss citizens would not approve a loosening of banking secrecy laws, putting Switzerland on a collision course with the US, which has stepped up demands for offshore financial jurisdictions to exchange information with the IRS.
Ms Widmer-Schlumpf admitted that the outcome of the negotiations would affect the “stability of the financial centre and the economic situation of Switzerland”.
Switzerland agreed last August to pass the names of 4,450 American clients of UBS, its biggest bank, to the IRS. Without the agreement, UBS faced further legal action over its long-running scheme to help US citizens to place their money offshore. However, last week a Swiss court threw the agreement into disarray by deciding in favour of a UBS client who argued that her failure to tell it of her Swiss bank account did not constitute serious tax fraud.
The terms of the court’s decision meant that, under existing law, Switzerland could hand over only 250 of the 4,450 names demanded by the IRS, Ms Widmer-Schlumpf’s office said.
US vs. Switzerland Tax bouts:
- February 18, 2009: UBS pays $780m to settle US charges of assisting tax evasion
- February 19: US sues UBS for names of 52,000 American clients
- August 19: Switzerland says it will hand over names of 4,450 US clients for settlement of UBS case
- January 22, 2010: UBS clients win legal action to bar handover
- January 27: Switzerland says it will renegotiate handover pact