BERN, SWITZERLAND – Data privacy concern is increasingly raising its head in US-Swiss talks over taxes, visas and banking. The latest incident is linked to Switzerland’s decision to continue participating in the US visa waiver programme.
Parliament will have its say in US data demands for visa waiver programme
The Swiss Federal Council Wednesday 1 February made it clear it intends to move ahead with negotiations with the US in order to remain in the US visa waiver programme. Switzerland has been part of the programme since 1986 but in October 2009 the US announced that partners in the programme would have to observe two new rules, says Bern. They were told that “partner countries will be required to increase police cooperation. This will entail the conclusion of agreements about the automatic exchange of DNA and fingerprint data to prevent and to combat serious crime (PCSC) and the exchange of data about known and suspected terrorists.”
Swiss media and politicians have been speculating in recent weeks that the US has been pressuring the Swiss government to agree to the new rules and that, given Switzerland’s penchant for privacy and data protection, the Swiss government would refuse. Some 340,000 Swiss travel to the US every year and the visa waiver programme means they can visit as a tourist for up to three months without first obtaining a visa.
But Bern now says it plans to go ahead with the negotiations, noting, however, its own ground rules. The US “requires that two agreements in the security area should be finalized. The Federal Council has instructed the Federal Department of Justice and Police (FDJP) to formulate a negotiation mandate in this area. Parliament and the Cantons will be consulted before the final granting of the mandate. Data protection aspects will be duly taken into account in the negotiation of the agreements.”
Double taxation treaty talks bring up data release questions
Bern gives green light to send thousands of e-mails, but they remain encrypted
The sensitive issue comes up just as the lower house of parliament’s tax commission announced, 31 January, that Swiss President and Finance Minister, Eveline Widmer-Schlumpf had brought it up to date on US-Swiss double taxation treaty negotiations. Details were not provided except to say that the discussion covered interpretations of “judicial assistance”, a sticking point in the negotiations, and “recent demands by the US”, without elaborating on these.
Swiss-German public radio DSR reported, however, that some 4 to 6 million e-mails, mainly correspondence about banks’ commercial affairs, were being offered to the US by at least some of the 11 banks currently under investigation by the US Department of Justice—but that the correspondance is encrypted and will not be decrypted until the two countries reach an agreement. The e-mails contain the names of client advisers. The banks are suspected by the US government of helping US citizens evade taxes.
Encryption until “global solution” found
Spokesperson Roland Meier of the Federal Finance Department then confirmed to journalists the information published by DSR. He noted that until a “global solution” is found with American judicial authorities, names that are encrypted may not be released unless a legal request is made to Swiss authorities, repeating what Widmer-Schlumpf said on television, “We will only decode when we have found a solution with the United States on all the banks that are under discussion.”
A legal request would need to respect the existing Swiss-US treaty and specifically state that the actions of the person whose information is being requested is punishable under both Swiss and US law. Details, TSR, French
Analysis, in French: Martin Naville, president of the Swiss-American Chamber of Commerce, analyzed the situation in a video interview with RSR radio, “Les choses ont changé” (6 minutes, free but registration required)
Switzerland’s vocal Americans joined by even louder Canadians
Americans in Switzerland, meanwhile, are expressing growing concern about their ability to maintain bank accounts for their daily living expenses, mortgages and pensions, with Swiss banks growing more wary of them as clients given US demands for information. A particular sticking point is the Fatca (Foreign Account Tax Compliance Act) law that starting in 2014 will penalize financial institutions around the world that don’t comply by revealing the accounts of US persons to the IRS and collect tax withholdings for the IRS from them.
Switzerland’s Americans were some of the first US citizens abroad to become aware of the problem, because of Swiss data protection issues and US efforts to obtain information from Swiss banks. But Americans living in Canadai are becoming increasingly vocal in their resistance to US efforts to obtain data. The larger US expat community in Canada recently formed the Isaac Brock Society, named after Sir Isaac Brock, who prepared Canadians for war with the United States and gave his life in repelling a US invasion in 1812, according to their site.
BERN, SWITZERLAND – Ireland and Switzerland announced Thursday morning 26 January that they have signed a protocol to amend their double taxation treaty, in the area of taxes on income and capital. Under the terms of the new agreement, which must be approved by both parliaments, each country can withhold up to 15 percent on gross dividend amounts, with some significant exceptions: if “a company holds a stake of at least 10 percent in the capital of the distributing company, the dividends will be exempt from withholding tax. Moreover, there will be no withholding taxes on dividends paid to the national banks of the two countries or to pension funds.”
The amendment also includes a OECD administrative assistance clause. Since the OECD insisted in 2009 that Switzerland revise its treaties to match OECD international standards covering judicial assistance in cases of tax avoidance, Switzerland has revised more than 30 double taxation treaties. Switzerland has proposed in some cases to maintain bank secrecy laws at home while helping other governments collect taxes by using withholding taxes that allow holders of assets to choose if they will declare their accounts in order to recover the tax at home, or not. Such agreements have been signed with France and Germany, but the European Union has said it opposes these on the basis that numerous bilateral agreements are not in line with EU rules.
Swiss parliament must approve the new US-Swiss double taxation treaty
BERN, SWITZERLAND – The new double taxation treaty between the US and Switzerland, agreed to in June 2011, is heading towards Swiss approval, with the upper house of parliament giving it the green light Tuesday 13 December. It could face more difficulties in the lower house, which will now debate it.
The treaty is designed to replace a 1996 treaty. Both provide for judicial assistance in cases of tax fraud, but the new treaty defines the framework for this more precisely and admits tax evasion as well as fraud, in some cases, as grounds for a request for assistance.
Tax evasion is a crime, but not a penal offense in Switzerland, whose list of allowable tax deductions is far shorter than those of the IRS, and evasion has until now not been accepted as grounds for assistance.
The June agreement was amended in November after a parliamentary commission recommended, 7-3, that the addition be made: it allows for group requests covering several financial accounts to be made together and, significantly, bank data could be given to US authorities without the US first providing a name and account number, in a very limited number of cases.
In a separate set of talks, Switzerland and the US have been discussing the case of 11 Swiss banks that are under investigation by the US Department of Justice for illegally assisting Americans in the US to hide money offshore from the IRS, the tax arm of the US.
In the sights of the IRS, but part of a much bigger picture
BERN, SWITZERLAND – Americans who create offshore shadow companies or foundations, clearly to avoid taxes and with the active help of a Swiss bank, could see their financial information shared with the IRS even if the US tax authority cannot provide their names, if parliament accepts recommendations of the upper house foreign affairs commission.
The commission agreed Thursday 10 November, in a 7 to 3 vote, to an amendment to the new double taxation treaty with the US, which parliament will consider in December. The amendment would allow group requests to be made: bank data could be given to US authorities without the US first providing a name and account number, in a very limited number of cases.
US, Swiss seek global bank solution, sooner rather than later
Meanwhile, the investigation into 11 Swiss banks by the US Justice Department continues. The US and Switzerland have been in talks for some time to find what Mario Tuor, spokesperson for the Swiss Tax Office calls “a global solution for all banks.”
There is no timeframe for finding such a solution, an official who asked not to be named has told GenevaLunch, but both sides say they want a solution sooner rather than later.
Switzerland has “made no offer to the US” over 11 banks
Tuor told GenevaLunch that Switzerland has made no offer for a lump sum payment, contrary to a Reuters “exclusive” story 3 November that mentioned a multibillion dollar settlement. Another Reuters reporter later quoted Tuor as saying Switzerland has not made an offer as part of the talks. He clarified to GenevaLunch Friday that no offer has been made by the Swiss, period.
In fact, says one official,who concurs, saying Switzerland has not made an offer, some people close to the case have discussed figures but these are far smaller than the several billion that Bloomberg and later, Reuters, mention.
The Reuters reporter in New York has qualified the Credit Suisse investigation by the IRS as part of a showdown between the two governments—a statement at odds with the Swiss government’s insistence on including in the new treatment the clarification that group requests can be made under some circumstances. “The move by the two Swiss banks to disclose American client names and account information is the latest event in a showdown between Switzerland and the United States over the withering tradition of Swiss bank secrecy,” according to reporter Lynnley Browning, who covers accounting and tax stories from the US for Reuters.
Browning repeated today, as news, information she says she gleaned a week ago from unnamed US “sources briefed on the matter”—despite it later being flatly denied by the Swiss government to another Reuters reporter in Zurich. Lynnley Browning, who has written articles for the New York Times in the past, frequently pitting the US against Switzerland as adversaries, writes 9 November that:
“Switzerland is trying to craft a deal with the United States that would cover its entire banking industry of some 355 banks. Switzerland had wanted a deal that covered accounts dating back to early 2009, when UBS AG , Switzerland’s largest bank, averted indictment and reached a $780 million deferred-prosecution arrangement with US officials. But the two letters from Credit Suisse and Clariden Leu suggest that US authorities are unwilling to accept a deal that would start with 2009 rather than the January 2002 date cited in the letters.”
Credit Suisse letters sent to clients at gov’t behest
Credit Suisse and its subsidiary bank Clariden Leu, this week sent out letters to some clients warning that their names will be turned over to the IRS, with Swiss government support, as a result of the investigations. Bloomberg reports that
“The IRS sought data for accounts owned through domiciliary companies in which clients are the beneficial owners, according to the letter. The Swiss Federal Tax Administration issued an ‘immediately executable’ order to the Zurich-based bank, which has no right to appeal, according to the letter. Taxpayers can consent to the SFTA handing over their account data to the IRS, or they can use the Swiss legal system to appeal a ruling by the SFTA that their account must be given to the IRS, according to the letter.
“‘Please be advised that Credit Suisse is not able to provide any information on whether or not information with respect to a specific account will be provided to the IRS,’ according to the letter, signed by managing directors Michel Ruffieux and Stephan Gussmann.”
The banks’ moves are being reported by some media outside Switzerland as a breakdown in Swiss bank secrecy but the information in the letters doesn’t reflect a change in practice which is based on the old 1996 tax treaty that allowed some group requests; the US reportedly has gleaned enough information from other cases to find patterns of fraud at 11 Swiss banks.
Catching major tax evaders in the future
Some US media are also incorrectly reporting that the amendment to the new treaty provides for an “automated” process. The treaty would simply clarify that some group requests could be accepted by Switzerland, a feature of the old 1996 treaty. The US is the only country to have such an agreement with Switzerland, according to Swiss officials.
“Tax fraud and the like” includes some cases of tax evasion
A significant change in the new treaty is that it will allow the US to request assistance in some cases of tax evasion and not just fraud.
The Federal Justice Department published a statement 31 March 2010 about the “amending protocol” of the new treaty that parliament will consider in December, noting that it “permits Switzerland to provide treaty assistance in cases not only of tax fraud, but also of continued and serious tax evasion.”
The commission included, in August, the preamble (see text) requested by the Federal Council that explicitly authorizes for the first time judicial assistance in a limited number of cases where American requests do not include a name and address. But there is a clear rider: the requests must be “proportionate” and “practicable”.
In other words, Bern continues to insist, fishing expeditions or mass requests for information are specifically ruled out. Switzerland remains firmly opposed to this, citing Swiss banking laws that protect privacy.
The amendment notes that the US must provide evidence of a “pattern of flagrant” behaviour and of a very serious effort either to defraud or to evade taxes involving “large sums of money”.
Amended treaty doesn’t provide catalog of suspicious behaviours
A minority of the foreign affairs commission called for a catalog of catalog to be drawn up that specifies what behaviour constitutes a pattern and is therefore considered suspicious and what is not, but the commission in the end voted against this. Le Temps in an article Friday morning points out that this could create legal problems in the future.
The amendment would apply only to the agreement with the US and not to other double taxation agreements, the commission’s chairman said Thursday evening.
The next step is for parliament to consider the commission’s recommendation, which calls for the treaty to be approved, with the amendment included.
The commission also recommended that parliament approve nine other double-taxation agreements as they stand, including those with France and the UK
Swiss federal government timeline of the UBS case and the double taxation treaty with the US
HSBC bank in Geneva
Bern, Switzerland (GenevaLunch) – The double taxation treaty between Germany and Switzerland may be signed by Federal Councellor Hans-Rudolf Merz before he steps down this month.
The agreement with Germany, whose citizens hold more money in Swiss banks than those of any other nation, has led to frequent friction between the two countries, as Germany attempts to claw back undeclared money in secret Swiss bank accounts.
The Swiss have been particularly troubled by several cases of theft of bank client details, which have then found their way into the hands of foreign tax authorities.
One of the ideas originally floated by the Swiss side was an anonymous tax on all foreign-held bank accounts in Switzerland, which would then be handed over to the foreign tax authorities. Account-holders who declare their assets to their home countries could expect to have the tax returned; the others would forfeit the amount. The idea was originally refused by the then German finance minister, but negotiators have been taking another look at it.
All quiet on the Swiss front over Germany’s threat to buy stolen bank data
Update 10:40 Bern, Switzerland (GenevaLunch) – The Swiss government has issued a statement following a speech Monday by German Chancellor Angela Merkel where she said that Germany is ready to buy stolen Swiss bank data. Bern says in a brief note that Germany’s finance minister, Wolfgang Schaeuble, telephoned Swiss Federal Councilor and Finance Minister Hans-Rudolf Merz Monday. Merz told his German counterpart that Switzerland will not provide judicial assistance for requests which are based on stolen data. He added that Switzerland is, however, prepared to work more closely with Germany to unmask fiscal fraud, within the context of a revised double taxation treaty.
Switzerland has in recent months negotiated more than a dozen such treaties with other countries. It is currently in negotiations with Germany for a new treaty.
Merkel’s speech was made after Merz was contacted by Schaeuble by telephone to say that the German government has been approached with an offer to sell information on 1,500 bank clients for abut CHF3.5 million.
Hans-Rudolf Merz, Swiss president, finance minister
Bern, Switzerland (GenevaLunch) – Swiss Finance Minister Hans-Rudolf Merz has put negotiations on the new Swiss-Italian double taxation treaty on hold until further notice. The move follows a raid by Italian tax authorities on Italian branches of Swiss banks last week and rumours of Italian officials spying on their countrymen in canton Ticino, which has caused outrage in Ticino. The tax treaty was ready to be ratified by the parliament, reports Sonntagsblick in an interview 1 November.
Merz has designated Renzo Respini, a former member of the upper house of Parliament, to be the government’s special political advisor in tax questions concerning Italy.
In case of emergency, press button!
Update 23:35 Bern, Switzerland (GenevaLunch) – Switzerland is in the process of setting up a tax hotline, primarily for US citizens, to deal with an expected influx of questions once the US and Switzerland both sign the new double taxation agreement, GenevaLunch has been told by a government official. The date for the hotline to open is not yet set, nor are further details available yet.
The Swiss cabinet 11 September gave a green light to two ministries, foreign affairs and finance, to sign the agreement. They are currently working on details, the official says, and while no one can yet say when exactly the agreement will be signed, he would not exclude that this could be in the very near future. [Ed. note: a Swiss Bankers Association senior official said at a meeting in Geneva Tuesday evening that Switzerland is expected to sign the agreement tomoorw, 23 September].
No fishing from France, please, say Swiss
Bern, Switzerland (GenevaLunch) - The Swiss government says “so-called ‘fishing expeditions’ remain out of the question, even ones from France.” The Federal Department of Finance Monday 14 September clarified details of the treaty signed 27 August 2009 with France, saying that although the wording differs slightly from that of some of the new double taxation treaties with other countries, administrative assistance requests from France in tax cases “will not deviate in practice” from agreements with other countries.
Bern, Switzerland (GenevaLunch) - The Swiss cabinet, the Federal Council, Friday morning 11 September approved the revised double taxation agreement that has been negotiated with the US, as well as one with Finland. The approval means that the treaties can now be signed by the Swiss Federal Department of Finance (FDF) and the Federal Department of Foreign Affairs (FDFA).
A government spokesperson told GenevaLunch that while the departments are already privy to the details of the treaty it is impossible to predict when they will sign them. Details of the agreements can be made public only once they are signed.
Bern, Switzerland (GenevaLunch) – The UK became the sixth country to sign a new double taxation agreement with Switzerland, Monday 7 September. A total of 14 treaties have been negotiated and initialed, but eight are yet to be signed. The treaties were negotiated after the Swiss government opted to exchange tax information with other countries in line with OECD standards.
Details released
Hans-Rudolf Merz, Swiss president and finance minister
Bern, Switzerland (GenevaLunch) – Swiss Finance Minister Hans-Rudolf Merz signed a new double-taxation treaty with his French counterpart, Christine Lagarde in Bern 27 August. The new treaty is the thirteenth Switzerland has signed since March, after Luxembourg and Denmark.
It brings Switzerland in line with the OECD standards for administrative assistance in cases of tax fraud, according to the Swiss government. Lagarde said in Bern that banking secrecy can no longer be used by one of the two states to refuse to provide information.
