Swiss Memo Outlines Possible Compromise on U.S. Demands
By Daniel Pruzin
Publication Date: 08/31/2011
GENEVA—A memorandum from the Swiss government outlining a possible compromise with the United States regarding secret bank accounts held by U.S. nationals with Swiss banks would have Swiss authorities combing through bank data on behalf of U.S. authorities to identify account holders who may be evading U.S. tax, according to a copy of the memorandum obtained by BNA.
The Aug. 8 memorandum, prepared by the Swiss Federal Council, the government's executive arm, and presented to the foreign affairs committee of the Swiss parliament's upper house Aug. 15, is intended to defuse a growing dispute with the United States over the activities of Credit Suisse, Switzerland's second-largest bank.
Credit Suisse is under investigation by the U.S. Department of Justice concerning the bank's cross-border private banking services for U.S. clients. On July 21, DOJ and the Internal Revenue Service announced that three former Credit Suisse employees have been charged with conspiring with other Swiss bankers to defraud the United States by helping U.S. customers stash $3 billion in Swiss accounts.
The Federal Council's memorandum outlines a draft supplementary report which would accompany a proposed amendment to the revised U.S.-Swiss double taxation agreement concluded in June 2009. That agreement, as well as nine other bilateral tax agreements, is being amended in response to an Organization for Economic Cooperation and Development peer review group report criticizing the administrative assistance provisions under the revised treaties as too restrictive.
Clarifications in Report
The supplementary report would “clarify” how the administrative assistance provisions under the revised treaty should be interpreted. In specific, the report would make it clear that Switzerland is prepared to process requests for administrative assistance under the treaty based on what the United States identifies as suspicious “behavioral patterns” of account holders without requiring U.S. authorities to first provide the names or personal data of the individuals suspected of tax evasion.
Under the current version of the revised treaty, a request for administrative assistance must include the name and address of the suspect U.S. account holder or the name and address of the information holder. The proposed amendment to the revised treaty, to be presented to the Swiss parliament for approval at its Sept. 12-30 fall sitting, would allow for the identity of the suspect account holder to be made by other means than a name and address.
The search result based on behavioral patterns is the same as when specific individuals are identified in the requests, the report continues. “The difference lies in the fact that, first of all, the behavioral patterns allow the identification of several people at the same time and, secondly, the actual identification takes place in the requested State,” the report notes.
This would mean that, in the case of Credit Suisse, the Swiss authorities would be charged with the task of identifying behavioral patterns of account holders and then the actual identification of persons suspected of committing tax evasion.
The report adds that, in order to ensure that any such request does not constitute a “fishing expedition,” the U.S. authorities must 1) set out the reasons why the authorities require the information; 2) provide a detailed description of the suspect “behavioral patterns”; 3) explain why one could assume the individual concerned demonstrating such behavior has not fulfilled his or her legal tax obligations; and 4) make plausible active misconduct by the holder of the information or the holder's employees.
The complete text of this article can be found in the BNA Daily Tax Report, August 31, 2011. For comprehensive coverage of taxation, pension, budget, and accounting issues, sign up for a free trial or subscribe to the BNA Daily Tax Report today. Learn more »
© 2011, The Bureau of National Affairs, Inc.