Swiss Parliament Must Still Approve Amended Protocol
The CBS news magazine 60 Minutes featured a story on January 3, 2010 concerning the tax controversy between Switzerland and the United States over Switzerland’s secretive banking industry. At the time, it appeared there would be no end in sight to the impasse.
Yesterday, however, the United States and Switzerland signed a landmark agreement to allow the Swiss government to provide information to the IRS on U.S. account holders of Swiss bank UBS. The agreement reached in Washington D.C. amends the income tax treaty between the two countries.
Watershed Moment for Swiss Banking
The agreement marks a watershed moment in the history of Swiss banking and its secrecy laws, which make the disclosure of client names a crime under Swiss law. With the Swiss government now on board, only Parliament’s approval is necessary to proceed with the disclosure.
In August 2009, the U.S. and Switzerland reached an agreement, under which the Swiss government was to hand over to the IRS for investigation information on approximately 4,450 UBS account holders.
In January, a ruling by the Swiss Federal Administrative Court threatened to torpedo the US-Swiss agreement. The court found shortcomings in the deal which the amended protocol now addresses.
Status as Bilateral Tax Treaty
The new protocol to the U.S.-Switzerland treaty establishes the necessary legal basis to allow the Swiss government to fulfill its obligations under the August 2009 agreement to provide information on UBS account holders to the IRS.
The protocol is designed to ensure the legality of the information release by raising the August 2009 agreement to the level of a bilateral tax treaty. According to the Swiss government, “the UBS Agreement now takes precedence over the older and more general convention, and permits Switzerland to provide treaty assistance in cases not only of tax fraud, but also of continued and serious tax evasion.”
However, the August 2009 agreement, having been raised to the level of a treaty, now must be ratified by the Swiss parliament. The Swiss government will not hand over any names until that ratification occurs, except in cases of persons who consent to the transfer or who have reported themselves to the IRS under last year’s voluntary disclosure program. A non-conformed copy of the new protocol is below:
Agreement Marks a Shift in Swiss Tax Law
Swiss law considers tax evasion — which it defines as the underreporting of income or filing incorrect returns — as a civil violation, different from tax fraud, which it views as a serious crime involving ill-gotten gains and the use of elaborate sham entities to hide assets. The I.R.S. views both tax evasion and tax fraud as criminal offenses.
The new protocol is significant because it shows that the Swiss government now effectively agrees with the American view that tax fraud and tax evasion are similar criminal offenses.
Switzerland to Remain International Banking Capital
Despite the changes, there are a number of reasons that Switzerland will continue to serve as a safe banking haven. Apart from the controversy over its secrecy laws, Switzerland still has its advantages in safeguarding funds against such uncertainties as coup de main, coup d’etat, revolution and hyperinflation.
Moreover, a host of multinational corporations have recently moved their European headquarters to the Swiss power centers of Zurich, Geneva and Zug because of the rock-bottom tax rates these Cantons offer. I wrote about these tax advantages in an earlier post– Why Relocating to Switzerland May be the Best Corporate Strategy
The current surge in the Swiss franc further serves to highlight Switzerland’s appeal to international banking. And the skiing is not too bad either.
Swiss banking is here to stay. What do you think?
*This post follows-up on two previous articles I have writton the UBS tax controversy, UBS Strikes Deal in U.S. Tax Case: The End of Switzerland’s Bank Secrecy Rules a Boon to Singapore Banking? and Swiss Banks Shutting Out U.S. Clients Due to Unprecedented Banking Oversight.