Tags: EU | Switzerland | UBS | Tax | Evasion

Court Stops Swiss Handing Tax Evasion Files to US

Friday, 22 Jan 2010 03:52 PM


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Switzerland cannot hand over files on 26 suspected tax cheats to U.S. authorities because their failure to properly declare assets doesn't constitute fraud under Swiss law, a top court has ruled.

The ruling released Friday sets limits on Swiss government cooperation with Washington in a U.S. investigation against banking giant UBS AG and could have implications for the way Switzerland handles some 4,424 other Americans suspected of tax evasion.

In the first appeal by former UBS customers against the handover of their banking details to U.S. authorities, the Federal Administrative Tribunal found that one client's failure to fill out a supplementary U.S. tax form didn't constitute fraudulent behavior.

Evidence of such behavior is necessary under Swiss law, and a 1996 treaty with the United States, for Switzerland to lift its strict banking secrecy rules and provide information on foreign clients to other governments.

The court instructed Swiss tax authorities to reassess the unidentified woman's case and 25 similar cases that were among 4,450 the government had agreed in August to hand over to Washington. UBS had previously paid a $780 million penalty under a larger deferred prosecution agreement filed in a Florida federal court that included disclosure of an additional 150 names.

In the U.S., the Internal Revenue Service said Friday it still expects the Swiss to honor the agreement.

"The United States and Swiss governments have an agreement to produce information on U.S. account holders at UBS," the IRS said in a statement. "We understand that the Swiss courts issued a decision today, which we have not yet reviewed. We have every expectation that the Swiss government will continue to honor the terms of the agreement."

Reaction from Swiss lawmakers to the ruling was mixed. Fulvio Pelli of the pro-business Free Democratic Party welcomed the decision, saying it was a victory for banking secrecy and the rule of law, the DAPD news agency reported. Social Democratic Party lawmaker Simonetta Sommaruga said the ruling raised "many questions" and could put Switzerland in "an uncomfortable position."

The Swiss government had hailed its accord with the United States last summer as an elegant solution to Washington's growing pressure on the Alpine nation and its secretive banking industry — long suspected of harboring billions in undeclared foreign assets.

The deal, which came about after months of legal pressure on UBS and revelations about its cross-border business dealings with U.S. clients, required the bank to hand over 4,450 names of U.S. customers suspected of large-scale tax evasion amounting to tax fraud. Evasion and fraud are distinct under Swiss law, something the court asserted in its ruling when it said that simply failing to act appropriately — such as by filling out a so-called W-9 form to declare assets held abroad — doesn't constitute fraudulent behavior.

It is unclear how the ruling, which cannot be appealed, will affect the remaining files awaiting transfer to U.S. authorities.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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