Swiss Parliament to Help with Disclosure of Undisclosed Offshore Bank Accounts

On February 24, 2010, the Swiss government announced that it will seek parliamentary approval to effectively overturn a Swiss Court’s efforts to block the release of information identifying U.S. accountholders at UBS AG (“UBS”) to U.S. authorities.  In the meantime, pending parliamentary approval, Swiss tax authorities are continuing to process U.S. requests for information on U.S. clients of UBS.

On August 19, 2009, Swiss and U.S. authorities reached an agreement (“the Agreement”) whereby the Swiss Confederation agreed to process a U.S. request for information regarding U.S. clients of UBS, pursuant to the U.S.-Swiss Double Taxation Convention (“Tax Convention”).  Under the Agreement, the Swiss Federal Tax Authority (SFTA) would process U.S. clients of UBS suspected of “tax fraud and the like” for disclosure to U.S. authorities.  

However, on January 21, 2010 the Swiss Federal Administrative Court (“the Court”) ruled that the Agreement’s “tax fraud and the like” provision was too broad and violated the Tax Convention – temporarily blocking the SFTA from turning over UBS clients to U.S. authorities.  Under the Tax Convention, Swiss banks may be required to disclose account information for suspected tax fraud – however it does not cover tax evasion.

The Swiss distinguish tax fraud, a crime, from tax evasion, a civil infraction.  Under Swiss law, tax evasion is an act of omission – failing to report income or assets – whereas tax fraud is an act of commission – actively lying to authorities.  The Court ruled that the Agreement violated the Tax Convention, which has greater legal force.  The Court reasoned that the Agreement allowed accountholders suspected of “tax fraud and the like” to be turned over – too broadly encompassing tax fraud and tax evasion – a violation of the Tax Convention.  The Court’s ruling has the potential to block disclosure of nearly 4,200 U.S. clients of UBS because those clients were only suspected of tax evasion, not tax fraud. 

The Swiss government’s action will circumvent the Court’s ruling, thereby paving the way for disclosure of U.S. clients of UBS suspected of tax fraud and tax evasion to U.S. authorities.  Essentially, Swiss authorities would elevate the Agreement to the same level as a treaty.  As a result, the treaty framework would be altered allowing for disclosure of U.S. clients of UBS suspected of tax fraud and tax evasion.  In the meantime, Swiss authorities indicated that they will continue to process the request by U.S. authorities for information on U.S. clients of UBS, pending parliamentary approval. 

What does this mean for U.S. clients of UBS?  While a Swiss Court may have temporarily blocked disclosure to U.S. authorities, the Swiss parliament is cooperating with U.S. authorities and continues to process the requests for information pending parliamentary approval, which appears very likely.  Information on all 4,500 U.S. clients of UBS will likely be turned over to U.S. authorities.  Once the information is handed over, the U.S. Department of Justice and Internal Revenue Service will conduct criminal investigations and civil audits into U.S. accountholders of UBS.  If you have been contacted by the UBS, Swiss authorities or U.S. authorities regarding your UBS account, you should immediately consider consulting a tax attorney who is versed in the intricacies of international tax law disputes.

For more information on these developments and offshore tax issues, please contact Kevin E. Thorn, Managing Partner at the Thorn Law Group, PLLC, 888 16th Street, NW, Suite 800, Washington D.C., Telephone: 1.202.349.4033, Email: ket@thornlawgroup.com.