Monday, July 8, 2013

Swiss Court Ruling in Credit Suisse Case (7/8/13)

The Swiss Federal Supreme Court has ruled, here, that the U.S. "group requests" under the treaty exchange of information provision are permissible if the request includes enough detail to establish grounds for suspicion of tax fraud and the like.  The holding came from a U.S. treaty request for information from Credit Suisse.  The core of the ruling is:
Group requests are permitted under the 1996 Double Taxation Agreement with the United States, provided that the facts are described with sufficient detail so as to provide grounds for suspicion of fraud and the like and to enable the identification of the taxpayers involved. 
In November 2012, in response to a request for administrative assistance issued by the American tax authorities, the Swiss Federal Tax Administration decided to transfer the bank records of a United States resident, who was the beneficial owner of a company holding an account with Credit Suisse. In a decision rendered on the 13th March 2013, the Federal Administrative Court rejected an appeal against this decision (A-6011/2012). 
Today, the Federal Supreme Court rejected the appeal against the decision of the Federal Administrative Court. It held that requests for administrative assistance in relation with fraud and the like are in principle admissible under the 1996 Double Taxation Agreement with the United States, regardless of whether the suspicion falls on one or more persons and whether the said persons are explicitly named in the request. As the Double Taxation Agreement contains no express provision concerning the minimum content of a request for administrative assistance, the content had to be assessed by interpretation. The Federal Supreme Court thus considered that the mere absence of indications relating to the identity of the persons involved did not constitute an inadmissible fishing expedition, provided that the request for administrative assistance fullfills the strict requirements concerning the degree of detail in the description of the facts. 
Regarding the actual facts presented by the American tax authorities, the Federal Supreme Court held that the method chosen by the clients of the bank involved, by which the financial assets held by a domiciliary company which was not subject to United States taxes, sought not only to avoid income tax owed by the beneficial owner of the company, but was also a way to escape American fiscal procedures put in place in order to ensure the payment of this tax. The process was described with sufficient detail to render the presence of tax fraud plausible.
The U.S. request sought Credit Suisse information on U.S. depositors holding financial assets through a "domiciliary company" which was "a way to escape American fiscal procedures put in place in order to ensure the payment of this tax."

As framed, presumably, the information would not include direct depositors who did not layer ownership with the domiciliary company.  One can infer that, since almost all criminal prosecutions have involved intervening entities, that the IRS and DOJ Tax find particularly offensive the use of intervening entities designed to obscure ownership.

The following is from Stephanie Soong Johnston, Swiss Supreme Court Upholds Legality of U.S. Group Requests (TNT 7/8/13):
The Federal Supreme Court's decision, combined with the Swiss government's recent announcement of a new framework giving banks the option to apply individually for authorization to cooperate with the U.S. Justice Department and resolve outstanding tax disputes within the scope of Swiss domestic law, could lead the way to ending the long-running dispute between Switzerland and the United States, he [Marnin J. Michaels of the Zurich office of Baker & McKenzie] added
Surely other "group requests" for other banks are in process, with responses forthcoming soon.  Noncompliant U.S. taxpayers with Swiss deposits should plan accordingly and, in most cases at least, should join OVDP 2012 if they have not already.

And, noncompliant U.S. taxpayers with deposits in other foreign banks should not be lulled into believing that the IRS is not doing anything with respect to their banks.  The IRS may not be doing anything.  Then, again, the IRS may be doing something.


  1. In the case of UBS, it was determined that entity accounts held by US beneficial owners with a high balance of at least $250K described the accounts sufficiently without being a so-called "fishing expedition," ditto for individually held accounts with high balance over $1m. (The request was more detailed than that.)

    What's interesting about the CS request is that only 96 entity accounts are being disclosed, far fewer than the 3,000 entity and individual accounts disclosed through the UBS request. This would suggest that CS was not engaged in recruiting US persons to the extent that UBS was.

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