Swiss lawmakers last night voted to debate a tax provision that signals their support for an amendment paving the way for the government to settle a U.S. offshore tax-evasion probe.
The amendment to a 2009 tax treaty will allow U.S. authorities to obtain data on groups of American clients holding Swiss bank accounts without knowing their identities. The lower house of Parliament in the Swiss capital, Bern, voted 116 to 51 in favor of debating the provision on Monday.
Switzerland and the U.S. are holding talks to resolve an investigation involving 11 Swiss financial firms, including Credit Suisse Group AG (CSGN), after the Department of Justice indicted Wegelin & Co. on Feb. 2 for allegedly helping customers hide money from the Internal Revenue Service. While the Swiss People’s Party voted against the debate, the Social Democrats will back the amendment after the government took steps to break with Switzerland’s past role as a haven for untaxed assets.
“There is an overwhelming majority for an approval of the agreement,” Christian Levrat, the head of the Social Democrats, told Swiss TV yesterday. “The new strategy of the government with expanded due diligence obligations for the banks is going in the right direction and allows us to vote in favor.”
Permitting so-called group requests may smooth the way for Swiss banks to hand over client data to the U.S. without the risk of legal action.
“They want to hand over this information to save their necks, but they’re letting clients down,” said Thomas Cottier, a professor of European and International Economic Law at the University of Bern. “That’s bad for the banks’ reputation, so they need clearance from the government and Parliament.”
The amendment clarifies a September 2009 tax accord, which Switzerland signed after agreeing six months earlier to meet international standards to avoid being blacklisted as a tax haven by the Organization for Economic Cooperation and Development. While a 1996 agreement already allows the transfer of dossiers in cases of tax fraud, the new accord will extend group requests to tax evasion.
Switzerland, the world’s biggest center for offshore wealth, is trying to shed its image as a haven for undeclared assets following a crackdown on tax evasion by U.S. authorities. Swiss banks must in future ensure that foreign clients are tax- compliant in their home countries, according to proposals last week by the Swiss government.
The vote “is a clear indication that the lower house will approve the amendment,” said Marianne Binder, spokeswoman for the Christian Democrats. “By allowing group requests, Switzerland is taking big steps toward more transparency while adhering to bank secrecy and the rule of law.”
Patterns of Behavior
Switzerland will grant administrative assistance in cases where the U.S. tax authorities produce clear evidence of a suspected offense and detail a “pattern of behavior,” according to the amendment. That would “significantly increase the amount of client data eligible for administrative assistance,” the Swiss government said in a strategy paper last week.
“Group requests represent a dangerous progression,” Xavier Oberson, a Geneva-based lawyer who was a member of the 2009 federal council taskforce on U.S. tax negotiations, said in an interview published in Bilan magazine on Feb. 15. “The difference is becoming less significant and we’re approaching something akin to fishing expeditions.”
Credit Suisse last November told clients that the IRS had sent a request, via the Swiss Federal Tax Administration, for the names of Americans with accounts owned through a “domiciliary company.” That request came under Switzerland’s 1996 tax agreement with the U.S.
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.
Following the pattern established with the UBS settlement, the names handed over will be Americans with accounts structured in ways to conceal their identities, said Matthew Ledvina, a U.S. tax lawyer based in Zurich. That means clients with trusts, foundations or other company structures, he said.
“The fine will be arbitrary, but the names will be determined by categorization based on elements of fraud,” said Ledvina. “Whether they have trusts, foundations, insurance, companies.”
Swiss banks will probably settle the U.S. probe of offshore tax evasion by paying billions of dollars and handing over names of thousands of Americans who have secret accounts, two people with knowledge of the matter said in October.
The cost to Credit Suisse of resolving the probe “could be” higher than the 295 million Swiss-franc ($324 million) provision that Switzerland’s second-biggest bank set aside for U.S. tax matters in the third quarter, Chief Executive Officer Brady Dougan said on Feb. 9.
“We’re doing everything that individually we need to do to cooperate with all the authorities,” Dougan said at the time. “But it is a complex matter and it will take time.”
The amended 2009 double-taxation agreement, covering cases starting in September of that year, will still need to be ratified by the Swiss government and has yet to be signed off by the U.S. Senate.
The decision by lawmakers “is just a small step toward a resolution of the negotiations with the U.S.,” said Franco Taisch, a professor of business law at the University of Lucerne, who adds the U.S. has the “upper hand” in negotiations. “It isn’t an assurance that the situation won’t escalate further.”
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