Tuesday, November 8, 2011

The Swiss Government Begins Disclosing Credit Suisse Accounts to IRS (11/8/11)

The U.S. Reporter on the Swiss bank beat, Lynnley Browning, reports that Credit Suisse has begun notifying "U.S. clients suspected of offshore tax evasion that it intends to turn over their names to the Internal Revenue Service." Lynnley Browning, Exclusive: Credit Suisse will disclose names of U.S. clients (Reuters 11/7/11), here. The Swiss Government has somehow found an accommodation under the exchange of information provision of the U.S. - Swiss double tax treaty (similar to the accommodation made for UBS and, I project, similar to the accommodation that will be made for other Swiss banks).

Credit Suisse sent a letter to Credit Suisse account holders that the reporter claims to have seen. According to the reporter's quote from the letter, "The I.R.S. is seeking information with regard to accounts of certain U.S. persons owned through a domiciliary company (as beneficial owners) that have been maintained with Credit Suisse AG." Also, the SFTA Order under the treaty "is immediately executable and Credit Suisse as an information holder has no right to appeal."
The letter says that the order applies to Credit Suisse accounts owned by domiciliary companies. The article says that a domiciliary company is "a type of shell company." This definition seems consistent with the concerns of the IRS in other contexts.

The letter offers the account holder two choices -- (i) agree to the disclosure or (ii) contest the handover through a Swiss administrative process (requiring, under U.S. law, that the account holder notify the U.S. Attorney General of the institution of that process).

As background, the reporter notes that the Swiss has traditionally required the requesting treaty partner (the U.S. here) to identify the specific taxpayer involved, but that under recent reinterpretations of the treaty, the Swiss are considering treaty requests based on "behavioral patterns." The Swiss have already turned over broad statistical data from which the IRS may be able to discern behavioral patters from which to frame treaty requests. Of course, the behavioral pattern of use of domiciliary or sham entities was already known to the IRS. But other behavioral patterns may be discovered.

Of course, the production of only domiciliary or shell company accounts is narrower than the production involved in UBS which included directly owned accounts. In the UBS brouhaha, it was clear that all involved (including SFTA) considered such domiciliary or shell companies particularly abusive and a category more easily disclosable under the treaty. But, in the UBS matter, direct individual accounts without entity ownership were requested and disclosed as well.  I predict that the U.S. will frame a broader request to the Swiss Government for Credit Suisse (and other Swiss bank) accounts, and that the Swiss will respond.  And, knowing the Swiss,

And, of course, now that the Swiss Government has confirmed that it is again going down this  this slippery slope for Credit Suisse, can the other Swiss banks be far behind. Logically, if the Swiss Government has concluded that accounts for ultimate U.S. persons owned by domiciliary (or sham companies) are disclosable under the treaty, why would not the same analysis apply to all Swiss banks? And, of course, when the Swiss Government decides to deliver up individual Credit Suisse accounts, why would that not apply to all Swiss banks. Stay tuned.


  1. The Bloomberg and WSJ coverage mentions the information exchange for US companies owned by US taxpayers is a response to a "recent request" by the IRS.

    My question is what does "recent" mean in this context? How quickly is the Swiss Government responding to the IRS, which will give an indication of the priority that obtains to the issue in Switzerland.

  2. Just a typo, you show 11/18/11 as the date on the article, it was probably posted on 11/08/11

  3. Under the recent headline:

    New U.S. tactic for suspected Swiss bank tax cheats


    U.S. authorities hunting in Swiss banks for suspected tax cheats have a new weapon in their arsenal: an arcane but aggressive legal maneuver more commonly used against drug smugglers, money launderers and Imelda Marcos, widow of the Philippine dictator.


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