June 19, 2013 6:06 pm

Landmark Swiss-US tax deal is in tatters

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The Swiss government’s attempt to reach a landmark legal resolution of the country’s bitter tax dispute with the US has failed, after the lower house of the Swiss parliament voted down the government’s bill for a second time.

The bill – put forward three weeks ago – would have allowed Swiss banks to circumvent the country’s strict bank secrecy laws and hand over business records to the American authorities, paving the way for them to agree individual settlements for their role in helping wealthy Americans evade taxes.

The rejection raises the possibility that the US will take further action against Swiss banks – an outcome the Swiss government and financial sector are desperate to avoid. The American authorities have already claimed one scalp, after Wegelin, Switzerland’s oldest bank, was forced to close after being indicted last year for helping Americans evade taxes.

Despite a last-ditch effort by Swiss finance minister Eveline Widmer-Schlumpf to save the proposal, the lower house of parliament on Wednesday voted by a margin of 123 to 63 not to debate it, meaning that the bill is now dead.

The bill came in for heavy criticism from Swiss lawmakers, both because the Swiss government has been attempting – under US pressure – to rush the measure through the parliament and because the details of the settlements that banks will have to agree with the US have not been divulged.

Lawmakers have suggested that the total cost of such settlements for the Swiss financial sector could reach SFr10bn.

The Swiss Bankers Association said that it “regretted” the failure of the law, adding that it would have been “the best way . . . to draw a line under the past”.

“Switzerland must not take the risk of a further indictment of a bank lightly,” the group warned.

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However, the conservative Swiss People’s party, which has long rejected any sidestepping of Swiss bank secrecy rules, said that it welcomed the fact that Switzerland’s laws had not been circumvented.

“It is now up to the government and the banks to find a pragmatic solution,” a spokeswoman said.

In an attempt to ward off the danger of further US action, the parliament on Wednesday passed a so-called ‘explanation’ – a statement which both recognises the urgent need to resolve the dispute and also calls on the Swiss government to take all possible steps to enable the country’s banks to comply with US demands.

Proponents hope that the goodwill gesture will convince the US of Switzerland’s intention to find a resolution to the tax spat. However, its chances of success are unclear. “The explanation has no legal significance whatsoever,” said Peter V Kunz, professor of business law at the university of Bern. “It is merely a measure to give the government political cover.”

The government could now individually allow banks to provide information to the US. However, Prof Kunz said that, unlike the government’s favoured solution, this approach would be susceptible to legal challenges from bank employees and third parties who did not want their details to be provided to the US.

“From the US’s perspective, this would mean that – in the best case – the transmission of data could be delayed by up to two years as cases work their way through the Swiss legal system. In the worst case the US would get nothing,” he said.

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