GENEVA, SWITZERLAND – The Financial Times wondered Sunday if the UK will drop out of the European Union, but most media weren’t willing to take it quite that far. Europe was nevertheless adjusting this weekend to a new set of relations after Britain vetoed a new EU treaty that would bind the members more closely financially. The UK was the only one of the 27 member countries to do so. UK Prime Minister David Cameron goes before parliament Monday 12 December to explain why he vetoed the treaty. He said after last week’s vote that it left the financial services industry unprotected.
Ireland has said it will start bilateral talks with London soon, with the Irish Times reporting that “The Government intends to launch an intensive diplomatic engagement with Britain to ensure London is not left isolated as a result of its refusal to agree strict new fiscal rules in the European Union.”
Links to other sites: Guardian, Irish Times, Le Monde interview with Nicolas Sarkozy (Fr), Telegraph
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
Update 2 18:55 Geneva, Switzerland (GenevaLunch) – US President Barack Obama and Russian President Dmitry Medvedev late Friday 4 December issued this joint statement after a week of high-level negotiations in Geneva:
“Recognizing our mutual determination to support strategic stability between the United States of America and the Russian Federation, we express our commitment, as a matter of principle, to continue to work together in the spirit of the Start Treaty following its expiration, as well as our firm intention to ensure that a new treaty on strategic arms enter into force at the earliest possible date.”
The treaty officially expires Saturday 5 December 2009. The two countries have said in recent weeks that while they were working towards completing a draft for a new treaty by the time the old one ends, it would more likely be the end of 2009 before a draft could be ready. The new statement avoids setting a deadline, but reinforces the commitment of both sides.
A spokesperson for the US Mission in Geneva said that “The US and Russia are continuing to work hard to complete the new Start Treaty and our delegations are making significant progress toward that end, nonetheless, some difficult issues remain.”
