Bloomberg News

Swiss Bid to Settle U.S. Tax-Evasion Dispute After U.K. Accord

October 12, 2011

Oct. 7 (Bloomberg) -- Switzerland will bid to use existing treaties to resolve a dispute over tax evasion by Americans with Swiss bank accounts and avert the risk of criminal prosecutions.

“We are aiming for an all-encompassing solution that will apply to all the banks,” Finance Minister Eveline Widmer- Schlumpf said in an interview in the Swiss capital Bern, commenting on negotiations with the U.S. “We don’t want to be confronted with the same issues time and again.”

The government hopes to submit the results of talks with the U.S. to lawmakers in the “foreseeable future,” Widmer- Schlumpf said before signing an accord with the U.K. in London yesterday. That deal, following a similar agreement with Germany last month, introduces a levy on wealthy Britons holding offshore accounts with Swiss private banks.

Switzerland, the world’s biggest center for offshore wealth, is seeking settlements after agreeing in March 2009 to meet international standards to avoid being blacklisted as a tax haven by the Organization for Economic Cooperation and Development. While the U.K. and German accords allow client identities to remain secret, the U.S. is targeting Credit Suisse Group AG and other Swiss banks with criminal investigations as it cracks down on tax evasion.

“While major OECD partner countries like the U.K. and Germany have been negotiating pernicious and weak settlements with Switzerland on information exchange, the U.S. authorities continue to apply robust pressure on Swiss banks,” the London- based Tax Justice Network said earlier this week in a study that ranked Switzerland at the top of a financial secrecy index.

Banks Targeted

Eight offshore banks are under federal grand jury investigation for facilitating tax evasion by American citizens, the U.S. Justice Department said last month. In 2009, prosecutors charged UBS AG, the largest Swiss bank, with aiding tax evasion by U.S. clients. UBS avoided prosecution by paying $780 million, admitting it fostered tax evasion, and giving the U.S. Internal Revenue Service data on more than 250 accounts. It later turned over data on another 4,450 accounts.

“We had the same experience with UBS last year, and now another 11 banks are being targeted,” Widmer-Schlumpf said in the interview. “There is a certain risk of an indictment or civil or criminal proceedings. We hope that won’t materialize and it’s something we’re working hard to avoid.”

The U.S. has agreed to base the negotiations with Switzerland on two existing double-taxation agreements, said Widmer-Schlumpf. On Aug. 22, Swiss President Micheline Calmy-Rey said the way U.S. tax authorities were seeking information from Switzerland on alleged tax evasion by Americans was “legally unacceptable.”

‘Temporary Outflows’

Switzerland and the U.S. must agree on a tax deal that complies with Swiss law, Patrick Odier, chairman of the Swiss Bankers Association, said last month.

The settlements with the U.K. and Germany may prompt some wealthy clients to pull money from Swiss banks, said Widmer- Schlumpf.

“There might be temporary outflows of funds,” she said. “But anyone who withdraws assets and deposits them in another country risks being monitored there and being subject to administrative assistance proceedings.”

Under the accord announced on Aug. 24 and due to come into force in 2013, Swiss banks will pay 500 million Swiss francs ($544 million) to the U.K. government to cover the failure by their clients to disclose undeclared money in the past. The banks will later be reimbursed from taxes paid by their customers.

Withholding Tax

Swiss banks will levy a withholding tax of 48 percent on interest income and 27 percent on capital gains earned by Britons with offshore accounts, according to the two governments. Revenue generated will go to the British Treasury, while client identities remain secret.

The U.K. expects to raise more than 5 billion pounds ($8 billion) from the one-off levy.

To prevent new, undeclared funds from being deposited in Switzerland, U.K. authorities can submit requests for information that must state the name of the client, though not necessarily the bank’s name, the Finance Ministry said. The number of requests will be limited to 500 a year and so-called fishing expeditions aren’t permissible.

“In the long run, the quality and the reliability of the legal system should be the main reasons for attracting people and not the option of stashing untaxed funds in Switzerland,” said Widmer-Schlumpf.

Pilot Projects

The U.K. and German agreements are pilot projects, she said.

“Several European countries as well as emerging market nations are interested in them,” she said. “At present, we are in discussions with them about technical details but there are no official negotiations yet.”

Widmer-Schlumpf said the cap on the Swiss franc, introduced on Sept. 6, is helping exporters.

“What we can see is that the measure has apparently been effective and that exporters now have a certain degree of security,” the finance minister said. “We hope that the franc will weaken further.”

The Swiss central bank last month imposed a ceiling of 1.20 francs versus the euro to aid exporters and fight deflation threats. The country’s currency had reached a record high of 1.0075 versus the euro on Aug. 9 as investors sought a safe haven from the euro area fiscal crisis.

‘Still Overvalued’

Still, “I also see that the export sector is having problems as the Swiss franc is still overvalued,” Widmer- Schlumpf said. “And the Swiss economy will continue to face problems in the fourth quarter and the coming year.”

The government last month lowered its forecast for Swiss economic growth. Gross domestic product will rise 1.9 percent this year and 0.9 percent in 2012, it said, after previously projecting 2.1 percent and 1.5 percent respectively.

Widmer-Schlumpf declined to comment on whether the central bank should raise the cap on the franc or take other measures to support the economy.

“The SNB will use its exclusive mandate to take measures necessary,” she said. “However, the federal council welcomes the SNB’s measures.”

--With assistance from Giles Broom in Geneva, Leigh Baldwin in Zurich and David Voreacos in Newark. Editors: Dylan Griffiths, Keith Campbell.

To contact the reporters on this story: Klaus Wille in Zurich at kwille@bloomberg.net;

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


American Apparel's Future
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus