Australia: UBS & United States of America Case: Update

In previous issues of PLN Bank Note, PLN reported on the landmark case between the United States and UBS which resulted in a settlement agreement reached between the parties in August 2009 (Settlement Agreement) which provided for the disclosure of information concerning 4450 US account holders¹ and an annexed agreement between the two governments (Governmental Agreement). The legal and diplomatic process in obtaining the requested information has been fraught with difficulty and conflicting interests including a Swiss Court decision in January which upheld a challenge filed by a US account holder against the disclosure. The resulting uncertainty has since been dispelled by the Swiss parliament's ratification of the Governmental Agreement and a significant amount of account holder information has now been disclosed to the US Internal Revenue Service (IRS) via the treaty process.

Swiss UBS related Court Case (January 2010)

While it looked imminent that the requested UBS account holders details would finally be provided to US authorities after the Settlement Agreement, a Swiss Federal Court ruling in January 2010 found otherwise. A UBS account holder who had sought to prevent her account data from being disclosed to the US tax authorities was successful²; the Court denied the legal basis of the IRS's demand for account holder's information under the existing bilateral tax treaty³ between the US and Switzerland (Tax Treaty). The Court qualified the status of the Governmental Agreement as a "Memorandum of Understanding" rather than an amendment to the Tax Treaty⁴.

The decision presented yet another obstacle for the US in obtaining the requested UBS account holder information and quite the conundrum for the Swiss Government who on one hand had mounting US pressure to comply with the request, yet on the other hand had seen the legality of providing the information undermined. The Swiss Government viewed the decision as preventing Swiss authorities from co-operating in the majority of the 4450 cases the subject of the Settlement Agreement, which they were well aware could lead to further civil action against UBS by the US⁵.

New Protocol signed (31 March 2010)

The Swiss Government stepped in to rectify the situation and on 31 March 2010 the US and Switzerland signed an amending protocol (Protocol) which raised the Governmental Agreement to the same level as the Tax Treaty⁶. This provided the necessary legal basis for the Swiss Federal Tax Administration to proceed to review the targeted accounts and issue a final determination (even in cases of continued and serious tax evasion) as to whether they meet the criteria which permits disclosure to US tax authorities⁷. After heated debate in both the upper and lower houses of the Swiss parliament, the Governmental Agreement was ratified in June 2010 averting the need to hold a referendum on the issue⁸.

Did Switzerland meet the August 2010 deadline?

The Swiss authorities have reported that approximately half of the 4450 American UBS account holders information was handed over to US authorities by the 26 August 2010 deadline, provided by the Settlement Agreement⁹. UBS expects that the remaining account holder information will be disclosed shortly¹⁰.

It appears the Settlement Agreement and the amendments to the Tax Treaty has consolidated a shift towards a new era of transparency in Switzerland signifying a significant crack in Swiss banking secrecy laws. The Swiss Federal Council's announcement that Switzerland intends to adopt OECD tax exchange and transparency standards on administrative assistance in tax matters (on 13 March 2009) is further evidence of this. Switzerland has since concluded bilateral negotiations with over two dozen states with further negotiations underway with other states in relation to the implementation of the OECD standards¹¹.

Footnotes

1.See The United States of America v. UBS .

2. "Update 3-Swiss government confident it can save UBS tax deal" http://uk.reuters.com/article/idUKLDE60P26N20100127 last viewed 14 September 2010.

3. Convention between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income signed at Washington October, 2, 1996, together with a Protocol to the Convention (General Effective Date 1 January 1998).

4. "UBS Case (Federal Office of Justice)" on the Federal Department of Justice and Police website Switzerland http://www.ejpd.admin.ch/ejpd/en/home/themen/wirtschaft/ref_fallubs.html last viewed 14 September 2010.

5. Above at no. 1

6. "US and Switzerland Sign Protocol to UBS Treaty" http://www.hsdtaxlaw.com/u-s-and-switzerland-sing-protocol-to-ubs-treaty last viewed 14 September 2010.

7. "US Switzerland announce Treaty Protocol to allow transferring of UBS names to IRS" http://www.taxtreatiesanalysis.com/2010/04/usswitzerland-announce-treaty-protocol-transferring-ubs-names-irs/ dated 1 April 2010

8. "Update 5-Swiss parliament approves UBS- US tax deal" http://www.futurespros.com/news/commodities---futures-news/update-5-swiss-parliament-approves-ubs-u.s.-tax-deal-130518 dated17 June 2010, last viewed 14 October 2010.

9. "Switzerland gives US half of data in UBS Tax Evasion Case", dated 27 August 2010 http://www.news.com.au/business/breaking-news/switzerland-gives-us-half-of-data-in-ubs-tax-evasion-case/story-e6frfkur-1225910804025 last viewed 14 September 2010.

10. "US Soon to end tax case against UBS" http://www.reuters.com/article/idUSTRE67P3NH20100826 last viewed 14 October 2010.

11. "Switzerland and Sweden Initial revised Double Taxation Agreement", The Federal Authorities of the Swiss Confederation (website) http://www.admin.ch/aktuell/00089/index.html?lang=en&msg-id=35099 last viewed 14 September 2010.

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