Advertisement ::

Enlarge Cartoon

Update 20:25  Bern, Switzerland (GenevaLunch) – The Swiss government will not automatically  hand over details of UBS accounts to the IRS, the US tax authority, without giving account owners a chance to defend themselves, Bern announced Tuesday 17 November: if Switzerland’s tax authority decides to turn over information to the IRS, account holders will first be notified and given a “chance to state their case.”

The announcement appears to be at odds with a remark attributed by the New York Times to Douglas Shulman, IRS commissioner, at a press conference held in New York Tuesday. He is reported to have referred to “‘the obligation that the Swiss have taken to the US government to produce 4,450 names’ to the IRS, he said.” But Switzerland says it will review the 4,450 accounts agreed upon and make a legal decision in each case about providing assistance to the IRS.

The Swiss government and the IRS Tuesday separately announced details of the process covered by their agreement, signed in August, concerning 4,450 UBS accounts where the IRS has asked for assistance as it chases tax evaders. Switzerland says the UBS affair will cost the government CHF40 million, with a team of some 40 legal and tax experts working fulltime for a year to decide in which of the cases Switzerland will provide assistance. Additional help from specialists will be called in if necessary.

The IRS’s Shulman also announced that more than 14,700 people had come forward under a tax amnesty that ended 15 October, for non-compliant taxpayers, well over the 100 or so who turn themselves in, in most years. He noted that the IRS case brought against UBS in 2008 will be dropped only if the US tax authority receives the names of 10,000 UBS clients, either through Swiss assistance or by the clients turning themselves in. The taxpayers who took advantage of the amnesty were from several countries and from many banks.

Tax adviser Gregory Dean of US Tax & Financial Services in Geneva Tuesday evening cautioned that “We should not lose sight that the voluntary disclosure programme still exists – the special programme promoted by the IRS closed October 15, but this has created the wrong impression that people can no longer come forward under the voluntary disclosure programme.  This programme still exists, though the IRS approach to a post-October 15 disclosure is a little uncertain. What is certain is that voluntary disclosure is not available where the IRS has initiated an investigation of a taxpayer.”

Ed. note: The documents which make up the annex to the agreement between the two countries are available, but only in German, on the federal government’s web site.

Highlights of the agreement

Two groups of UBS clients are being targeted by the IRS, “where there is a reasonable suspicion of ‘tax fraud or the like’”:

• US-domiciled clients of UBS who directly held and beneficially owned undisclosed (non-W-9) custody accounts and banking deposit accounts in excess of CHF 1 million at any point in time between 2001 and 2008
• US persons (irrespective of their domicile) who beneficially owned offshore company accounts established or maintained between 2001 and 2008.

The phrase “tax fraud or the like” could lower the threshold to include holders of accounts containing assets of CHF250,000 or more if investigators uncover conduct such as “constructing a scheme of lies or submitting incorrect or false documents” that might “result in the concealment of assets and the underreporting of income”, the Swiss announcement notes.

Switzerland may also be asked to help in cases where accounts “generated revenues of more than CHF100,000 on average per year for a period of at least three years, where such revenues were not reported to the IRS.”

How the system works

The procedure is relatively straightforward for review of the cases: UBS filters the client files based on the criteria listed above. These are then handled electronically by the Swiss Federal Tax Administration (SFTA). Swiss data protection security precautions are in place and SFTA asks PricewaterhouseCoopers (PWC) to review the facts in accordance with SFTA instructions. SFTA is the authority responsible for making the legal decision on whether or not to provide assistance, in other words, to give the IRS the account information. Bern notes in its announcement that the SFTA “will allow the individuals concerned to inspect their dossiers upon request, and will also give them the opportunity to state their case. The rights of these individuals are therefore safeguarded in full. Finally, the SFTA will decide whether or not assistance will be provided, and will issue a final decision.”

Account holders then have 30 days in which to appeal, before the IRS is given the information.

Timeframe

The 4,450 cases agreed to must be reviewed and decisions taken by Switzerland no later than 31 August 2010. The first 500 cases are due for decisions by the end of November.

US Ambassador to Switzerland Donald Beyer last week said he believed the final number of cases turned over to the IRS could be far smaller than 4,450, a comment in line with remarks made previously by Swiss officials, but today’s notice makes it clear that most of the accounts have not yet been reviewed to see if they fit the agreed criteria. The amount of money involved has been the source of much speculation, with US officials saying as much as $18 billion in undeclared money could be in the accounts.

Background: GenevaLunch, IRS tag

Links to other sites: AP/Yahoo, swissinfo