In a setback for efforts to end a tax dispute between the U.S. and Switzerland, a Swiss court announced on Wednesday that Credit Suisse could not turn over account data of its American clients to the U.S. tax authorities because doing so would violate the terms of a 1996 tax treaty between the two countries.
In its decision, dated April 5 and published on Wednesday, the Federal Administrative Court in Bern upheld the appeal of a bank client who had objected to having his account data given to the IRS.
The United States is investigating Credit Suisse and 10 other Swiss banks on suspicions that they helped Americans evade taxes. The court decided that the IRS cast too wide a net in a September request for confidential Credit Suisse client information. The criteria, the court found, were not narrow enough to enable the bank to identify clients suspected of fraudulent conduct “with a high degree of probability”.
Rather, it appeared that the IRS was pursuing people for “above all mere tax evasion, for which administrative assistance cannot be granted”, according to the 1996 treaty, “even if high amounts are at stake”. The court also said that “mere failure to declare a bank account may be qualified at the utmost as tax evasion, which is not subject to administrative assistance”.
The law governing Swiss banking secrecy distinguishes between tax fraud, which is a crime in Switzerland, and tax evasion, which is not a distinction that has never held sway in Washington.
The ruling hinders Credit Suisse's efforts to reach a deal with the IRS and limits the Swiss government's options for addressing the issue. A court decision favourable to the transfer of the data might have created a precedent that would smooth a path for the other institutions that are being investigated to resolve their own problems and end the uncertainty created by the investigations. Swiss and U.S. officials are continuing to work toward a global settlement that would render such ad hoc requests irrelevant. Eveline Widmer-Schlumpf, the President of the Swiss Federal Council and Finance Minister, said last month that there had been “considerable progress” toward such an agreement, which she said would include deferred prosecution deals for Swiss banks, fines and a “substantial” transfer of client data to the IRS.
Washington's attack on Swiss banking secrecy began with its successful pursuit of UBS, the largest Swiss bank, which agreed in 2009 to pay a $780-million fine and hand over data on thousands of client accounts to avoid prosecution.
A spokesman for the Swiss government did not return calls seeking comment. Spokesmen for the IRS and for Credit Suisse declined to comment. — New York Times News Service
