Switzerland Law Change Proposal May Provide Tax Evader Details to IRS

The United States government may be victorious in a long-running battle with the Swiss government over US tax evasion.

Swiss judicial and government officials are all moving toward agreement that US clients in Swiss banks must have their account data handed to the Internal Revenue Service (IRS). Switzerland’s largest bank, UBS, and other financial institutions in the country also support the rulings, which would turn over the names of 4,450 American UBS clients to the IRS.

The US believes these names represent UBS clients who are large-scale US tax evaders. The US government has threatened prosecution and punitive actions against Swiss banks if they do not comply with efforts to catch tax evaders.

Swiss laws and legal precedent currently prevent handing over the names, and the clients demand that their identities be protected. Tax evasion is not a crime in Switzerland, and a January court case affirmed that a UBS client was not required under Swiss law to tell the IRS about her UBS account. However, UBS could face prosecution in the United States if the bank does not give up the names by August 19, 2010. UBS already faced legal challenges in the US, but paid a $780 million settlement.

The US could withdraw banking licenses for Swiss banks, a move that would be very costly for the banks. In April, the Swiss Federal Administrative Court ruled that fewer than 25 American clients at UBS are allowed to block the transfer of their financial data to the IRS. The Swiss parliament is expected to follow suit in June, changing Swiss law and reaching an agreement with the US

Before the Swiss government’s actions, UBS had already dropped many American clients after the bank’s employees were accused of helping the clients avoid American tax bills.

The overall secrecy of the Swiss banking system, which has long been lucrative and controversial, may be ending. Other European governments, whose citizens make up the bulk of Swiss banking clients, are joining the US in pushing Swiss banks to end their role in tax evasion.