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Insights & Alerts
March 01, 2010

U.S – Swiss Tax Treaty Controversy
By Dara Jones, Tax & Businesss Services

During the past year, the United States has negotiated agreements with countries which have been criticized for facilitating offshore tax evasion. Treasury Secretary, Tim Geithner, stated “Tax evasion is not simply an American issue; it is a global issue requiring global coordination.” As a result of these negotiations, several tax agreements were signed that would allow for an easier exchange of tax information between the United States and Switzerland, Gibraltar, and Luxembourg.

The agreement most scrutinized is between the United States and Switzerland. During January 2010, the Swiss court ruled that the agreement for UBS to release the identities of US taxpayers to the IRS violates the country’s banking secrecy laws. This ruling occurred just months after a treaty was finalized to increase tax information exchanges between the two countries. Under the US/Swiss agreement, either government will have to describe each account in question and submit a treaty request which will include the person under scrutiny, the filing period in question for the necessary information, and the tax purpose. If the account meets the criteria for disclosure, the Swiss government will instruct the bank to turn over the information requested. This treaty provision allows the IRS to receive information on accounts in which securities or other investment assets are held and offshore company accounts are held indirectly. The treaty also amends the arbitration clause to make arbitration necessary in cases involving taxation issues of IRAs across borders.

The Swiss Federal council says they will review the court’s decision and promises to uphold their agreement with the United States. However, several UBS account holders are appealing to higher Swiss courts to not have their account information released to the IRS. The IRS expects UBS to adhere to the terms of the agreement.The US government has budgeted $250 million dollars towards international tax evasion and collection efforts.

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