Bern, Switzerland (GenevaLunch) – Switzerland and the United States “initialed” a revised double taxation agreement (DTA) in Washington, DC 18 June. According to the US government, “Official signing of the protocol is expected in the next few months.” A new agreement was necessary following the Swiss government’s decision 13 March to adopt the OECD’s (Organisation for Economic Co-operation and Development) Model Convention standard under which countries provide each other with tax assistance.

The decision followed pressure on Switzerland from other OECD member countries to ease its strict banking secrecy laws. The OECD has told Switzerland it must have 12 new bilateral tax agreements in place by the end of 2009 if it does not want to appear on a “gray list” of countries that are considered non-compliant.

To date Switzerland has initialled agreements with Denmark, France, Mexico, Norway, the US and another, unnamed country. UBS, Switzerland’s largest bank, is currently facing legal action in the US from the IRS tax authorities to obtain information on 52,000 UBS accounts held by US citizens. TSR quotes Swiss finance ministry spokesman Roland Meier as saying that the case of UBS was discussed, but on the fringes of the tax treaty talks.

The news was announced Friday 19 June after the close of business and financial markets in Switzerland. The details of the agreement are confidential for the time being, with the Swiss Federal Council limiting its explanation to this: “The decision will permit an exchange of information on tax matters in individual cases where a specific and justified request has been made.”

The United States tagged the news as part of the Obama administration’s efforts to fight what it sees as tax havens. “This Administration is committed to reducing off shore tax evasion to help ensure that all US taxpayers are playing by the same rules,” said Treasury Secretary Tim Geithner. “This treaty will increase our ability to enforce our tax laws and will help bring an end to an era of offshore accounts and investments being used for tax evasion.”

Swiss cantons and business organizations that are affected by a US-Swiss tax treaty will be provided with a summary of the agreement as part of the Swiss consultation process. The Swiss government, in explaining the process for getting the agreement from the discussion stage to final approval, explains that “initialling is defined as the approval of a contractual text by appending initials. Negotiators can in this way provisionally draw up the negotiated contractual text of DTAs (and other agreements based on international law).”

The revised agreement comes at the end of two working sessions between the countries, one in late April and the second one this week.

The agreement must now wend its way through the Swiss political process:

• the agreement will only be published after being signed at ministerial level, in other words, the Federal Council provides authorization for the agreement to be signed;
• it can only enter into force if it has then been approved by Parliament. In addition the US must also have approved the agreement;
• On the basis of current practice, DTAs that “provide for significant additional obligations” are subject to an optional referendum and, to date, the decision about a referendum rests with Parliament.

Related: Swiss government announcement in English, US announcement, and “Countering offshore tax evasion: some questions and answers” published 17 June 2009 by the OECD

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