Swiss Court Blocks IRS Efforts to Obtain Account Holder Information
April 12, 2012
In recent years the IRS has been trying to crack down on those notorious Swiss bank account holders. Since 1996 Swiss and U.S. authorities have had an agreement to share information in order to curb international tax evasion. In 2009 we highlighted the IRS’s success at securing from UBS the names of 4,450 American holders of Swiss bank accounts.
However, this week the Swiss Federal Administrative Court ruled that the ’96 treaty does not allow the IRS to request information on account holders unless U.S. authorities have clear evidence of tax fraud. The ruling rests on Swiss laws that distinguish between tax evasion and tax fraud. Bloomberg Businessweek reports:
Drawing on Switzerland’s distinction between evasion and fraud, the court said evidence of tax evasion, such as failure to declare a Swiss bank account, didn’t provide sufficient grounds for the IRS to receive the data. It also criticized the fact that the IRS didn’t specifically name the suspected tax cheat in their information request.[…]
“Administrative assistance [to the IRS] shall not be granted for presumed tax evasion, even if high amounts are at stake,” the court said. “The mere failure to declare a bank account may be qualified — at the utmost — as a tax evasion, which is not subject to administrative assistance,” it added.
According to Tax Analysts (subscription required), “the existing treaty provides for exchange of information only in cases of fraud, which, according to Swiss law, is a violation involving actions such as falsifying documents. Tax evasion is not illegal in Switzerland.”
In a related story, on Tuesday a U.S. federal judge ruled in favor of UBS in a suit brought against the bank by billionaire real estate developer Igor Olenicoff. After pleading guilty to tax evasion in 2007 and paying $52 million in back taxes, Olenicoff sued UBS in 2008 for fraud and conspiracy, claiming that the bank had told him he was not required to report the accounts. The judge ruled that the billionaire’s guilty plea in 2007 effectively negates any claim he has against the bank. In 2009 the bank paid a $780 million fine, admitting to fraud and conspiracy for their part in helping thousands of Americans to hide billions of dollars in secret accounts.
For more on tax avoidance and evasion see our paper, Bank Secrecy, Tax Havens and International Tax Competition, and blog posts here and here.