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
New interpretation of treaty obligations sends amendments to parliament
France may more easily ask the Swiss for tax fraud help, thanks to new amendments - if parliament agrees
Bern, Switzerland (GenevaLunch) - Revised tax treaties with the US, UK and France among others, already signed by both parties, will need amendments that will send them back to the Swiss Parliament, the Federal Department of Finance announced Tuesday 15 February.
The amendments would allow other countries to ask the Swiss for help even if they can supply only bank account numbers, in some cases, although Bern insists “fishing expeditions” will still be excluded, says Bern.
The change could face a hurdle in parliament, with Bern’s statement on the new amendments noting that “the Federal Council is aware that the wish was expressed in the parliamentary debates that administrative assistance be permitted only if the name and address of the person and the information holder concerned are indicated in the request. This is why the revision decided will also be submitted to parliament.”
30 new treaties at various stages will require amendments
Switzerland’s peer review by The Global Forum on Transparency and Exchange of Information for Tax Purposes, which began at the end of October 2010, lies behind the change.
The group examines compliance with the administrative assistance standard in countries affiliated to it by means of peer reviews.
Bern’s statement on the treaties notes: “Identifying the taxpayer and the holder of the information is an indispensable prerequisite for the granting of administrative assistance. In most cases, this occurs by indicating the name and address. Other means of identification should also be admissible in the future. Switzerland thereby eliminates a foreseeable obstacle to the effective exchange of information in tax matters and reduces the risk of failure in the peer review process. Fishing expeditions continue to be impermissible.”
Switzerland decided in March 2009 to revise all its double taxation treaties (DTAs) after agreeing to adopt the OECD Model Convention for administrative assistance in tax matters. Thirty agreements have been negotiated, but they are in various stages of implementation:
Ikea in Vernier-Geneva, which opened in 2010
Lausanne, Switzerland (GenevaLunch) - Ingvar Kamprad, the Swiss-based 84-year-old publicity-shy Swedish founder of furniture giant Ikea is suddenly in the limelight.
Swedish public television station SVT is accusing him and his family, in a documentary, of fiscal fraud. The story of the frugal self-made man suddenly uncovered made world headlines Thursday, from the Sydney Morning Herald’s AP story of how Kamprad’s family owns all the valuable company royalty rights, quietly safeguarded in a Liechtenstein foundation, to the Financial Times more studied review of Ikea’s corporate financial structure.
Kamprad is specifically accused of using the Liechtenstein-based Interogo Foundation, previously unknown to journalists but created in 1989, to hide Ikea’s corporate profits by obliging every Ikea store to turn over 3 percent of sales to Interogo as part of a copyright and trademark arrangement.
The accusations prompted Kamprad to write this week to news agency TT, as Sweden’s English language The Local reports: “In an email from Ikea sent to the TT news agency, Kamprad admits that the Interogo Foundation in Liechtenstein exists and that it owns Inter Ikea Holding SA, which in turn owns Inter Ikea.”
Bern, Switzerland (GenevaLunch) - The cliffhanger votes are over: with 81 for, 63 against and 47 abstaining, the lower house of Parliament has voted not to put to a popular referendum the treaty covering 4,450 UBS bank accounts. A final lower house vote scheduled for Friday will now not go ahead and the Federal Council can proceed with the treaty’s requirement to review and hand over data on 4,450 cases of suspected US tax fraud.
The lower house’s approval, following that of the upper house and the backing of the Federal Council, means the government can meet the treaty’s 31 August deadline to review data and deliver it.
UBS New York headquarters
Zurich, Switzerland (GenevaLunch) – There will be no trial of the current and former heads of Swiss bank UBS, the Zurich prosecutor’s office announced Tuesday 15 December. Shortly afterwards, the UBS board announced that it would not press charges, either, against unnamed former senior executives. Swiss politicians have been calling for someone to take responsibility for the most serious banking debacle in Switzerland’s history.
The possibility that the bank might have collapsed at the end of 2008 in the wake of the US sub-prime catastrophe moved the Swiss government to inject billions of Swiss francs into the bank. The public prosecutor in Zurich said that in the case of the sub-prime losses and cross-border case that pitted UBS against US tax authorities, there was no evidence that Swiss law had been broken.
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.
Bern and Zurich, Switzerland (GenevaLunch) – Highlights of the agreement between the US and Switzerland in the UBS out of court settlement, provided by the Swiss government, include (Ed. note: US Department of Justice page on the settlement):
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.
