As our readers may recall, back in August of 2009, UBS and the Swiss government agreed to disclose 4,450 secret accounts belonging to U.S. citizens to the IRS. The settlement, however, hit a stumbling block after a Swiss court ruled in January of this year that such a transfer of data would breach existing Swiss law.
On March 31, 2010, the U.S. and Switzerland signed a protocol to the 2009 agreement that called on Switzerland to provide administrative assistance under Article 26 (Exchange of information) of the Switzerland-U.S. income tax treaty regarding information on the U.S. clients of UBS (UBS Agreement). Although the terms of the protocol were not provided to the public, the Swiss Federal Council said that the revised UBS Agreement created the necessary legal basis for the Switzerland’s tax administration to issue final decisions on “cases regarding continued and serious tax evasion” and permitted Switzerland to comply with its obligations to the U.S. as required under international law.
In an attempt to overcome the shortcomings of the UBS Agreement that led to the Federal Administrative Court’s January 27, 2010 decision, the amending protocol raises the UBS Agreement to the same level as the income tax treaty between both countries. The announcement is significant insofar as it demonstrates that the Swiss Federal Council appears to agree that the U.S. view of tax fraud and tax evasion are criminal offenses. Under Swiss law tax evasion (e.g. the failure to report or the under-estimation of income) is merely a civil violation as opposed to tax fraud (e.g. falsified documents), which is viewed as a serious crime. The U.S. views both tax evasion and tax fraud as criminal offenses.
“The protocol does not alter in any way the amount or type of information that the Swiss must provide the IRS on US account holders,” said IRS Commissioner Doug Shulman. “We expect the Swiss government to honor its commitments under the original agreement. In the interim, we stand ready to pursue the legal options available to us should the Swiss fail to provide the required information.”
Former IRS Attorneys of Holtz, Slavett & Drabkin can assist you with resolving your tax problems. You may reach us at (310) 550-6200.
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