Tuesday, November 8, 2011

Article Summarizing the Swiss Bank Developments and Process (11/8/11)

I offer here a new article which I think readers might find quite helpful.  Walter H. Boss and William M. Sharp, Sr., The Swiss-U.S. ‘Turnover’ Ground Rules: A Technical Update, 64 Tax Notes International 423 (11/7/2011), here.

Key points which struck me on a quick read are:

1. The article contains a very good short history of the saga involving the Swiss bank accounts.

2. Under the double tax treaty, Switzerland commits to provide information on the U.S.'s request for "tax fraud or the like." Tax fraud for this purpose does not include tax evasion which the Swiss view as a lesser evil than tax fraud. (Tax fraud is really bad rather than just bad.) In this regard, there is a bit of a semantic difference. In the U.S., we generally equate tax fraud and tax evasion, whereas the Swiss make a distinction between tax fraud and tax evasion. Indeed, it seems (see below), tax evasion may be merely failure to report the income and pay the resulting tax.
These linguistic difference call to mind another case I recently encountered where a British tax plan was called a "scheme." In the United States, the word scheme would connote something bad or evil and, in a tax context, even fraudulent. But, so I am told, in the U.K., a scheme is just a tax plan. This is somewhat confirmed anecdotally with this example from a book I was just reading last week (Hoffman, Joel MAnd God Said: How Translations Conceal the Bible's Original Meaning, p. 44 (Macmillan. Kindle Edition 2010):
Another British/American example is more subtle and, therefore, more likely to cause confusion. American author John Steinbeck’s book Of Mice and Men takes its name from a line in a poem by Robert Burns. Many Americans are familiar with the quotation: “The best laid plans of mice and men [often go awry].” But that’s not actually the original. The poem really reads, “the best laid schemes of mice and men. . . .” The problem is that in Scottish English, a “scheme” is any old plan, while in American English it’s a plan to do something wrong or illegal. (Consider a “scheme to get money” versus a “plan to get money.”)
Which is to say that it is all about interpretation.
3. Under a protocol negotiated in 2009 but awaiting confirmation by the U.S. Senate,
the exchange of information under the protocol will no longer be limited to cases of ‘‘tax fraud or the like’’ but will also encompass cases of mere tax evasion. Therefore, an action that would merely constitute tax evasion under Swiss law (for example, mere non-reporting of income and failure to pay applicable tax thereon) but not ‘‘tax fraud or the like’’ would be subject to mutual assistance and would override otherwise applicable Swiss bank secrecy provisions.
4. But, the article notes, the Swiss are still resisting what I called John Doe Treaty Requests -- i.e., requests that do not name the taxpayer but identify the taxpayers within the scope of the request by certain characteristics. The Swiss call these "fishing expeditions." But, the article notes these caveats:
First, when the August 19, 2009, settlement agreement was adopted, the last page of that document contains a separately executed one-page ‘‘Declarations’’ stating that the Swiss Confederation ‘‘will be prepared to review and process additional requests’’ for mutual assistance ‘‘based upon a pattern of facts and circumstances that are equivalent to those of the UBS case.’’ Accordingly, if presented with a substantially similar fact pattern of offshore abuse as was present in the UBS case, then the Swiss government declared it will ‘‘be prepared to review and process’’ mutual assistance requests, but subject to applicable laws of Switzerland — not that the Swiss would make an immediate handover of confidential data to the U.S. government. However, the legal framework for carrying out this bilateral proclamation is indeed the protocol (as article 2 of the August 19, 2009, settlement agreement mandated) that the two governments signed in September 2009 — but still not yet ratified by the U.S. Senate.
Second, in light of the most recent developments within the OECD (Committee on Fiscal Affairs) and with a view to the developments regarding the disclosure requests from the U.S. regarding Swiss banks allegedly harboring noncompliant American accountholder funds, the Swiss federal government recently submitted to the parliament a proposal to complement the ratification resolution in the protocol based on a mere fact-pattern-based request for information. This proposed addendum to the ratification resolution mandates satisfaction of four conditions.
The first condition is that the U.S. IRS must indicate why the information requested is necessary and relevant. Second, a detailed description of the alleged fact pattern must be given. Third, a violation of the law by those people fitting the alleged fact pattern must be plausible. Fourth, an act of active behavior of the bank or of one or several of its employees must be credible.

The Swiss parliament decided to postpone both the discussion and a vote on this key addendum until after the recently completed October 22-23 election. It is fair to say that this postponement is due to the way the parliamentarians expect such a passing of a resolution to be viewed by the Swiss voters because it is commonly believed beyond a doubt that no UBS-style agreement would pass the parliament under any circumstances. 
For completeness sake, the upcoming December 2011 elections in Switzerland will be for the federal government only in that the parliament will elect the seven members of the federal government.
5. The article notes that U.S. accountholder will be given an opportunity to be heard about the disclosure and discusses the procedures.


  1. My name is Darlene Hart and I am the founder of US Tax & Financial Services. With regards to the Credit Suisse letter and the Clariden Leu letter, both letters are identical and they are identical to the UBS letter, except the UBS letter gave the client 5 options, where as the Credit Suisse Letter only gives 2 options. I have copies of the letters if you would like one. What is more interesting, rumour has it here in Switzerland, that only 500 letters were sent out at this time, but I expect more to follow. All the letters sent out were for 'beneficial owners' of various stiftung, trust, corporate type structures with accounts from 2002 to 2010 and approximatly 50 of our clients received these letters. These are clients who have already entered into the 2009 or 2011 OVDI programs. Which leads me down 3 roads..
    1. Either the IRS has given these names direct to the Swiss Federal Tax Authorities, to obtain full bank information on people who have already been through the 2009 OVDI program or for complete information on clients who are currently in the 2011 OVDI program for comparison purposes.

    2. Or the bank, already knows that these people have entered into some type of VD with the IRS, because these people have requested 10 years worth of bank records on their accounts, so there is no harm in handing in their names.

    3. Or the SFTA has requested documents on all American accounts in anticipation of their current negotiations with the DOJ.

    I believe scenario 3 is the most likely, and this is just the beginning.

    I am impressed with your blog.

  2. To Darlene Hart @ November 11, 2011 3:39 AM

    Thank you so much for your comments. I would very much appreciate sample copies of the letters (with client information redacted, of course). You can email them to me at jack@tjtaxlaw.com.

    And thanks for the compliment.

    Jack Townsend

  3. Regardless of what the Swiss do with retroactive laws , etc , the common thread with the 4450 UBS customers to be turned over as well the current turnover discussions seems to be client notification and right to appeal. After all , notification is what makes the difference between civil and criminal. Have you heard of anyone having all their information turned over without notification? Also , I just recently saw in a Swiss blog where 100 clients of the 4450 did successfully oppose release of their data to IRS in Swiss courts.


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