For a few months, it seemed that the 2009 legal settlement between UBS and the Swiss and US governments was in jeopardy. In January 2010, a Swiss court ruled that UBS would be in violation of Swiss law to abide by that settlement and hand over “secret” banking data to the IRS. So, when that court made its controversial ruling, just like in the American system of government, the focus turned to the legislature to enact a law to get around the court decision. For the last few months, we watched as the Swiss political parties maneuvered in favor or against proposed legislation to ratify the UBS agreement and to allow UBS to give up account data to the IRS.
It appears that the major political parties in Switzerland all now support the proposed legislation, which is expected to pass the Swiss Parliament sometime in June, and as early as one week from now. The effect of this law will be to elevate the UBS settlement to the status of Swiss law, and thus overcome the Swiss court’s January ruling.
Along the same lines, a Protocol to the Swiss-US tax treaty, signed in March 2010 by Switzerland and the US, is also expected to be approved by the Swiss Parliament. This Protocol ends the long-standing distinction, under Swiss law, between tax fraud and tax evasion. In the past, this distinction prevented cooperation and information exchange between a Swiss bank and US authorities except in cases of overt fraud. Now, under the new Protocol, cooperation and exchange of banking information would be mandated even in civil tax audits and investigations, far short of an actual tax fraud case.
The result of both of these actions by the Swiss Parliament: the end of Swiss banking secrecy vis-a-vis the IRS.
Our clients with bank accounts in Switzerland have already received letters from the Swiss Federal Tax Administration (SFTA) advising that the SFTA has determined to share their account information with the IRS. The SFTA is merely waiting for the Swiss Parliament to meet in June and approve the new legal changes. In just a few weeks, or even days, the bank account information will be on its way to the IRS. However, because our clients authorized us to bring them to the IRS and make a pre-emptive disclosure of their Swiss accounts, the SFTA action and the Swiss Parliamentary process are non-issues. These clients are already tax-compliant and need not fear disclosure by the Swiss authorities.
If you have a Swiss bank account and have not yet brought it into US tax compliance, the window is closing quickly. Swiss Parliamentary approval is expected to occur imminently and will be a mere formality before banking data is handed over to the IRS. Once the IRS learns of your Swiss account, the IRS will not accept your voluntary disclosure. You would then be subject to criminal prosecution for tax fraud. The time to make the account tax compliant via voluntary disclosure is right now, before the Swiss Parliament meets in June, and the SFTA starts sending files to the IRS.