Swiss Digging A Deeper Hole Over Foreign Tax Evasion

Swiss Digging A Deeper Hole Over Foreign Tax EvasionSwiss lawmakers are in a twist over agreeing how to resolve a long running tax dispute with the USA.

The US government alleges that Swiss banks have helped US clients evade tax.

Wegelin, Switzerland’s oldest bank has already closed after admitting the charge in a New York court.

The bank opened in 1741, more than 30 years before the Declaration of Independence was signed in America.

The bank was fined £36 million for advising 100 US customers how to evade tax on £1 billion held in secret accounts for more than a decade.

The prosecution – and the threat of more to come – focussed Swiss politicians on cleaning up banking secrecy and led them to the negotiating table with Washington.

Other Swiss banks under investigation include Credit Suisse, Julius Baer and 10 or more smaller private institutions.

Secrecy rules

The aim was to define how Swiss banks could comply with forthcoming US Foreign Account Tax Compliance Act rules that come into force from January 1, 2014.

The proposal was a framework to let Swiss banks bypass secrecy rules to hand data on US taxpayers with holdings of more than $50,000 to the IRS.

The agreement went before the Swiss Federal Council, a seven-member committee that acts as the nation’s head of state. Each member heads a government department.

The council voted against accepting the proposals and has left the Swiss scratching around to give the country’s banks legal support in co-operating with the US Internal Revenue Service.

Politicians have been quick to emphasise that the collapse of the agreement does not signal Switzerland is failing to support the IRS and FATCA.

The problem is more an issue for Switzerland’s ultra-conservative banking community who wish to retain their secrecy over dealings with customers and lawmakers who realise those days have ended and the nation must come into line with the rest of the world on tax transparency and sharing financial information about overseas customers.

Dishonest banks

Politicians now face the threat of more action by the IRS against leading banks that embarrasses the Swiss banking community and accuses of them of dishonesty and tax evasion that undermines their business reputation.

Meanwhile, Britain has picked up a £3 billion boost as a payment by Swiss banks on account of undeclared earnings on accounts held by UK taxpayers – with Germany set to follow suit in striking a similar pact.

Lawyers in Switzerland, Withers Zurich, warned that taxpayers who have not come clean about their Swiss holdings will soon face prosecution.

“Once a taxpayer is under investigation, voluntary disclosure in return for lenient treatment is not an option and that window is fast closing,” said a spokesman.