U.S.-Switzerland Protocol Will Allow Handover of UBS Account Holder Information

By Alistair M. Nevius, J.D.

Miscellaneous

The United States and Switzerland announced a new protocol amending the income tax treaty between the two countries to allow the Swiss government to provide information to the IRS on U.S. account holders of Swiss bank UBS. The protocol has been approved by the Swiss Federal Council and was signed in Washington, DC, on March 31.

In August 2009, the United States and Switzerland negotiated an agreement under which the Swiss government was to hand over to the IRS for investigation information on approximately 4,450 UBS account holders. Among the selection criteria for determining which account holders’ information would be released was failure to provide a Form W-9 for three years.

However, in January a Swiss court held that certain account holders’ data did not have to be handed over because, the court ruled, mere failure to file a Form W-9 does not by itself amount to tax fraud ( U.S. Taxpayers v. Swiss Federal Tax Administration ). This ruling called into question the legality under Swiss law of the handover of any account holder data.

The new protocol to the U.S.-Switzerland treaty establishes the necessary legal basis to allow the Swiss government to fulfill its obligations under the August 2009 agreement to provide information on UBS account holders to the IRS.

The protocol is designed to ensure the legality of the information release by raising the August 2009 agreement to the level of a bilateral tax treaty. According to the Swiss government, “the UBS Agreement now takes precedence over the older and more general convention, and permits Switzerland to provide treaty assistance in cases not only of tax fraud, but also of continued and serious tax evasion.”

However, the August 2009 agreement, having been raised to the level of a treaty, now must be ratified by the Swiss parliament. The Swiss government will not hand over any names until that ratification occurs, except in cases of persons who consent to the transfer or who have reported themselves to the IRS under last year’s voluntary disclosure program.

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