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.
Swiss Bankers Associatio CEO Claude-Alain Margelisch
GENEVA, SWITZERLAND – Few details have surfaced from the discussions between the US and Switzerland about a new “global solution for all banks“ that would end serial tax evasion investigations by US authorities, with both sides pledged to silence while negotiations are underway.
The head of the Swiss Bankers Association gave a rare glimpse into the talks when he said in Geneva Tuesday 22 November that his group’s role is to find a solution for “the rest of the financial sector” but not for the 11 banks under investigation by the US Justice Department.
The small group of banks, which includes Credit Suisse, is suspected by the US of helping American clients evade taxes by hiding money offshore.
Claude-Alain Margelisch, chief executive of the Swiss Bankers Association, qualified discussions with US officials as “productive”.
Margelisch, Swiss banking group head, met with int'l media in Geneva Tuesday
His group approached its members, he says, “to find solutions. I can say we’ve made progress.”
His remarks came in the context of a presentation to the Swiss Foreign Press Association on key banking events of the past year. The agreements with the UK and Germany were major accomplishments, he said, but these are not yet ratified and “we have to convince all parties” that the treaties are a compromise and the best way forward.
The group’s priority with the agreements is to see them ratified, he says. “Our view is that there can be no renegotiation”, as suggested by some German parliament members who are opposed to the treaty.
Swiss banks want to “draw a line under the past but protect the future,” he told the reporters. “Our strategy is clear: we want the clients’ [business] to remain in Switzerland and we want this business done correctly.”
ZURICH, SWITZERLAND – Sonntagszeitung in Zurich has reported, citing an unnamed source, that Credit Suisse is handing over client data for 130 customers to the Swiss government, at the request of the American tax service, the IRS. The federal government, which has demanded that the bank turn over the names immediately, according to the Swiss weekly, will review the names and data, and provide them to the US tax authorities once it decides they meet the criteria required for Switzerland to provide administrative assistance to the US.
Swiss procedure allows the clients a chance to appeal, a process that could well mean it takes several months for the IRS to obtain the information.
Credit Suisse has so far not confirmed the Swiss weekly publication’s numbers. Last week it said it was informing clients who are affected by the move.
GENEVA, SWITZERLAND – Canada’s finance minister has come out loudly against new US tax laws that will increase reporting requirements to the IRS, the US tax arm, for dual citizens, as well as recently stepped-up efforts by the IRS to obtain tax information about Americans in Canada.
The IRS efforts to chase tax cheats are netting another group, he says, with “the threat of prohibitive fines for simply failing to file a return they were unaware they had to file is a frightening prospect that is causing unnecessary stress and fear among law abiding hardworking dual citizens,” he said in a letter sent to several major US publications 19 September.
He noted that “their only transgression is failure to file the IRS paperwork they were never aware they had to file.”
Canadian media have made their government’s resistance to the US moves headline news this weekend, as concern grows in Canada and elsewhere outside the US over the new Fatca (Foreign Account Tax Compliance Act) rules, expected to go into effect in 2014. Fatca will require financial institutions outside the US to provide information on accounts held by US citizens and green card holders.
CBC, Canadian public broadcasting, quote Flaherty as saying he shares the concerns of fellow citizens over the reach of the IRS beyond US borders (http://www.cbc.ca/fp/story/2011/09/16/5413714.html).
Swiss banks have reacted to the proposed Fatca rules by, in many cases, closing accounts of US citizens and refusing to open accounts for Americans resident in Switzerland because Fatca regulations will be at odds with Swiss banking laws.
US media, meanwhile, have been publishing the news that some 12000 taxpayers took advantage of the most recent tax amnesty by the IRS, which ended 9 September, noting that the IRS has so far collected $500 million in back taxes and interest.
An AP news agency article picked up by the CS Monitor, Yahoo news and scores of US newspapers, with a headline “12,000 tax cheats come clean under IRS program”, doesn’t mention that the amnesty encouraged many who were unaware of the FBAR reporting requirements to file forms that require taxpayers to show the largest amount in all financial accounts during every tax year. The fines for not reporting were as high as 50% of any unannounced holdings.
The Fbar requirement was designed as an anti-terrorism tool, to catch money launderers, and is not overseen by the IRS itself.
American Citizens Abroad has been actively working to inform taxpayers about these obligations, but discussions on their website and town hall meetings organized by ACA have made it clear that several IRS filing requirements have been little known and poorly understood by the public.
Jim Lacey, a former National Irish Bank (NIB) director, has been disqualified for “gross negligence” and “various breaches of duty”, with a high court judge finding that “his conduct made him unfit to be concerned in the management of a company”. The ruling followed an investigation of 10 years of the bank’s activities, with the inspectors concluding in 2004 that the bank was involved in widespread tax evasion. Lacey’s tenure as chief executive and director ran from 1988 to 1994 and the ruling comes 17 years after the event.
Lacey had argued that being disqualified would have major consequences for him; the Irish Times notes that “since leaving NIB, he was appointed to various State boards, including the Dublin Docklands Development Authority, worked with the World Bank and was a director of two International Financial Service Centre companies.”
The judge’s lengthy report came down hard on Lacey for at best being unaware of certain practices at the bank which, as CEO, were his responsibility. “While noting Mr Lacey had said he was unaware of various improper practices within the bank, the judge described as ‘bordering on incredulity’ Mr Lacey’s insistence he did not know what a senior NIB official meant in 1989 when describing non-resident accounts as ‘a sensitive issue’ and referring to ‘this thorny subject’ of Revenue concerns,” according to the Irish Times. “Mr Lacey should have been aware – and in some cases was aware – of a practice of treating certain accounts as non-resident accounts when they were not, the judge said. Mr Lacey ought to have known that practice facilitated the evasion of Dirt by the bank.”
Dirt is the acronym for Deposit Interest Retention Tax.
RTE, Irish broadcast company, notes that the length of the disqualification period will be set in May.
Germany’s highest court has ruled that stolen client data obtained by German prosecutors may be used against people who are accused of evading taxes, in a landmark decision 30 November. The Karlsruhe-based Constitutional Court found against a woman who claimed the investigation against her was illegal because it was based on stolen information.
German authorities have in the past purchased CDs containing client data stolen from banks in Liechtenstein and Switzerland by former bank employees.
Links to other sites: BusinessWeek, Deutsche Welle, Monsters and Critics
FinCen (Financial Crimes Enforcement Network), an arm of the US Department of the Treasury, Tuesday 28 September published a proposed rule that would oblige financial market and monetary transaction businesses to report to it all transactions of $1,000 or more, into and out of the US. These businesses are already required to keep records of such transactions, says FinCen, but the new rules would require them to “affirmatively report” such information as part of the US fight against terrorism and money laundering, says FinCen.
“‘By establishing a centralized database, this regulatory plan will greatly assist law enforcement in detecting and ferreting out transnational organized crime, multinational drug cartels, terrorist financing, and international tax evasion,” says FinCen Director James Freis. “FinCen has examined the cross-border reporting issue, taking into account the exceptional benefit to law enforcement and the modest cost to industry, and we look forward to working closely with both as this rule moves forward through the public comment process.”
The new requirement would take aim at tax evaders by creating a database of anyone moving $1,000 or more into or out of the United States for any reason. “FinCen is also proposing to require an annual filing by all depository institutions of a list of taxpayer identification numbers of account-holders who transmitted or received a CBETF (cross-border electronic transmittals of funds). This additional information will facilitate the utilization of the CBETF data, in particular as part of efforts to combat tax evasion by those who would seek to hide assets in offshore accounts.”
The public has 90 days in which to comment on the proposed new rules.
Credit Suisse, Zurich
Zurich, Switzerland (GenevaLunch.com) – Credit Suisse has confirmed to AP that it is cooperating with German authorities, who searched 13 of its offices in Dusseldorf, Zurich and Munich Wednesday morning. The searches are part of an ongoing investigation into whether or not bank employees helped German citizens evade taxes.
The investigation into 1,100 cases began as the result of data stolen from the bank, on a CD that the German government bought. Credit Suisse acknowledged earlier in 2010 that it appeared some of its clients were being investigated, but given that investigations are underway, it is not providing further comments. In March the bank cut staff travel from Switzerland to Germany because of the investigation.
Swiss government able to continue checking 4,200 UBS client accounts requested by IRS
New protocol buys gov’t time before Parliament’s vote on new tax treaty
Update 21:15 Bern, Switzerland (GenevaLunch) - Switzerland and the US Wednesday 31 March both signed an “amending protocol” to their 19 August 2009 agreement whereby the Swiss promised to issue final decisions on some 4,450 UBS bank clients whose account information was requested by US tax authorities. The new protocol has the same legal weight as the double taxation agreement between the two countries, which must be approved by the Swiss parliament.
New protocol outweighs old tax agreement, could take precedence over new
It means, according to Bern, that “the UBS Agreement now takes precedence over the older and more general convention, and permits Switzerland to provide treaty assistance in cases not only of tax fraud, but also of continued and serious tax evasion.” It goes a step further, according to the statement issued by Bern.
Update Zurich, Switzerland (GenevaLunch) - Credit Suisse has confirmed weekend Swiss media reports that it is restricting travel for staff in Germany, following an announcement Friday by the German government that it is investigating 1,100 cases of tax evasion and that the investigation includes looking at the role played by Credit Suisse staff. “We already have restrictions on travel in place and now these are being applied very strictly in the case of Germany,” a Credit Suisse spokesman told Reuters Sunday. A German official told Swiss magazine Blick the accounts could be worth an estimated €1.2 billion.
Germany has been threatening for months to use information it purchased in 2008, stolen from a bank in Liechtenstein, LGT, to investigate tax evasion cases. In recent weeks tensions have risen between Germany and Switzerland over Germany’s efforts to buy data held by France that was stolen from HSBC in Geneva.
Background, GenevaLunch
Update 2 22:50 Bern, Switzerland (GenevaLunch) - Reports were published Tuesday evening 1 December by several international news agencies that two Swiss businessmen, Max Goeldi and Rachid Hamdani, have been sentenced to 16 months in prison and fined $1,671 each by a Libyan court. Reuters received an e-mail confirmation from the Swiss foreign affairs ministry late Tuesday night confirming the news. The men have been sentenced on visa irregularities charges, according to the Swiss spokesman, Reuters reports. They are currently both at the Swiss Embassy. The two have been unable to leave the country since July 2008, shortly after Hannibal Qadaffi, the son of Libya’s leader, was arrested in Geneva for abusing his staff at a hotel. The arrest sparked a diplomatic row which has not been resolved, and the new sentences could strain tensions even further.
The two men, in Libya on business at the time of their arrest, were at the centre of intense negotiations in August 2009, when Muammar Qadaffi appears to have promised to help release them soon. Agencies reporting the story quote an unnamed Libyan official who also says the men face another trial, but no details were provided.
TSR, Swiss public television, early Tuesday evening reported that an official at ABB, the multinational that employs Goeldi, confirmed to the station that the men had been sentenced.
Bern, Switzerland (GenevaLunch) – “There is no guarantee that the IRS will have 4,450 names” when Switzerland finishes reviewing the 4,450 UBS bank accounts identified according to the criteria established by the United States and Switzerland, Folco Galli of the Swiss Federal Justice Department told GenevaLunch Wednesday 18 November. There is also no reason to believe the number will be close to this – or, on the other hand, far smaller. The US ambassador to Switzerland, Donald Beyer, last week commented that he expects the number to be far smaller, while the New York Times appears to have erroneously implied 17 November that Switzerland must turn over this many names to the IRS.
“At the moment, no one knows,” Galli says, because the accounts and names are being reviewed, a process that will take a year. And no one knows how many, if any, of the 14,700 individuals who came forward to the IRS under the amnesty programme, are part of the group of 4,450 UBS accounts, since those account holders are currently all known only to the bank itself. UBS, as part of the agreement, is filtering the identified accounts based on the governments’ criteria in order to turn data over to the federal administrative review.
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
Zurich, Switzerland (GenevaLunch) – The Swiss Socialist Party (PS) filed a criminal complaint Friday 14 August against Marcel Ospel and Peter Kurer, two former chairmen of the board of Swiss banking giant UBS.
The bank’s present difficulties with the US tax authorities, the IRS, can only have been undertaken with the knowledge of its top management, according to SP leader Christian Levrat. He said that if the terms of the agreement initialed between Switzerland and the US require UBS to hand over the names and details of thousands of clients, then it becomes clear that UBS has broken Swiss law, which does not allow tax fraud.
Update 15:40 Bern, Switzerland (GenevaLunch) – Swiss authorities are investigating charges by a US man, who has pleaded guilty to tax evasion in the US, that a Swiss government official was bribed to provide his lawyer with information on the UBS court case. The information purportedly indicated, incorrectly, that his name was not among the 250 that UBS would eventually gave to IRS tax authorities in the US.
Reuters notes that bribery is extremely rare in Switzerland and the accusations have prompted concern in Bern, the capital, and among banking circles. Transparency International in its latest (2008) bribe payers’ index, puts Switzerland near the top of the list of relatively corruption-clean countries.
Earlier in the day 29 July Swiss media carried a report from wire service ATS that Alan Gold, the judge in the UBS bank case in the US, has scheduled a meeting by telephone Wednesday with the US Justice Department and Switzerland, to clarify progress being made towards an out of court settlement. The two parties to the case were encouraged by the judge 13 July to explore a settlement in the case where the IRS tax authority is demanding the names of 52,000 holders of UBS bank accounts.
In related news:
- a UBS client in the US, Jeffrey Chernick of New York, Tuesday 28 July pleaded guilty to fiscal fraud, saying that a Swiss lawyer had talked him out of turning himself in and paying back taxes in October 2008. The lawyer, according to Chernick’s court statement, assured him that a Swiss government official said his name was not on a list that would be given by the bank to the IRS. The attorney told Chernick the government official was paid CHF45,000 for the information. Chernick is the third person to plead guilty to tax evasion charges, from the group of 250 whose names were given to the IRS in February. Chicago Tribune and RSR, Fre
- former head of the UBS wealth management unit in the US, Joseph Grano, says that in early 2008, before the bank’s problems with the IRS were public, he wrote to the bank’s then-chairman and president, Marcel Ospel and Marcel Rohner, suggesting they spin off the unit, but they never replied. Bloomberg
Bern, Switzerland (GenevaLunch) – The United Kingdom is the tenth country to initial a revised double taxation agreement with Switzerland, followed Bern’s decision 13 March to follow OECD (Organisation for Economic Co-operation and Development) guidelines for tax treaties. The OECD has given Switzerland until December to initial new agreements with 12 countries in order to be removed from what is known as its gray list of countries considered to not cooperate fully in tax evasion investigations.
The initialing process indicates that the countries have agreed to the negotiated terms in principle.
Updated 18:07 New York, NY, USA (TSR, Fre) – First UBS and now Credit Suisse: the IRS, in inquiries which are increasingly far-reaching into fiscal evasion and fraud by US citizens and their overseas banks, has reportedly been investigating Credit Suisse and London-based HSBC since September, according to the New York Times. But Credit Suisse in Zurich says it has no knowledge of such investigations and HSBC saying the same.
Switzerland (GenevaLunch) – Swiss banking secrecy, tax evasion, offshore banking versus tax havens: the old clashes between Switzerland and its neighbours as well as the US, are making headlines again. Last week front page stories covered Barack Obama’s voting record on tax havens, but this week the news is Tages-Anzeiger’s revelation that a small number of entirely Swiss-Swiss bank transactions, in Swiss francs, are accessible to the American CIA.
