Talks to resolve a long-running spat between Switzerland and the United States over how to pursue suspected tax evaders suffered a blow Wednesday, when a Swiss court blocked the handover of one unnamed bank client's data to U.S. authorities.
The Federal Administrative Court said a 1996 treaty between Switzerland and the United States doesn't allow the U.S. Internal Revenue Service to request the account details of potential tax cheats without clear evidence of fraudulent intent.
Drawing on Switzerland's distinction between evasion and fraud, the court said evidence of tax evasion, such as failure to declare a Swiss bank account, didn't provide sufficient grounds for the IRS to receive the data. It also criticized the fact that the IRS didn't specifically name the suspected tax cheat in their information request.
The IRS had asked its Swiss counterpart in September to provide details on certain types of American clients who it said had received help from Credit Suisse in hiding income and assets in secret accounts.
"Administrative assistance shall not be granted for presumed tax evasion, even if high amounts are at stake," the court said. "The mere failure to declare a bank account may be qualified -- at the utmost -- as a tax evasion, which is not subject to administrative assistance," it added.
The ruling, which cannot be appealed, puts a strain on negotiations between Bern and Washington aimed at facilitating the exchange of information on suspected tax cheats.
The U.S has taken a hard line on Switzerland in recent years, resulting in several significant concessions to Swiss banking secrecy.
Two years ago, Switzerland's biggest bank UBS AG was forced to hand over the names of thousands of American account holders and pay a $780 million fine.
Last year it emerged that the U.S. was targeting about a dozen other Swiss banks, including Credit Suisse, on suspicion they too had helped Americans hide money abroad.
Switzerland has tried to shed its image as a tax haven, signing deals with several countries including Germany and Britain to provide greater assistance to foreign tax authorities seeking information on their citizens' accounts in the Alpine nation.
But the agreements have drawn fire from Switzerland's nationalist People's Party, which won more than a quarter of the vote in last year's general election, with some lawmakers saying they will try to block the treaties through referendums.