Swiss Court Ruling Prevents Prosecution by US Federal Tax Body

26 February 2018

A recent ruling by the Swiss Federal Supreme Court determined details of Swiss banking employees and other third-party persons and organisations should not be passed to the American tax organisation IRS (Inland Revenue Service). This means the IRS is unable to prosecute them, according to several European banking compliance experts.
Details of the Recent Swiss Decision
On the 3rd January, the Supreme Court in Switzerland ruled that such details pertaining to third-party individuals such as lawyers and bankers were irrelevant in US prosecution of tax evasion. They further ruled that documents containing names of non-US citizens must be removed prior to being passed to the IRS. The court determined that such details could be passed over but only if necessary. Analysts say that such a clause makes it “insurmountable” to prosecute Swiss citizens.
This decision does not just affect the US; it also limits information exchange for tax authorities elsewhere. France is another country presently seeking such information.
Intention of Tax Prosecution
The investigation began when the DOJ (US Department of Justice) began proceedings to acquire information regarding Swiss bankers complicit in aiding American citizens evading tax. The intention was for DOJ to prosecute such people for tax conspiracy and equivalent laws. They sought to acquire this information through clauses set down in the Double Taxation Treaty between USA and Switzerland.
Article 14(2) of the Swiss Federal Act on Criminal Administrative Law (SR 313.0) makes provisions for information exchanges assistance in 'aggravated tax fraud'. The provision determines that information can be handed over where knowingly false information is provided in pursuance of tax evasion. This can apply to offshore shell companies too.
Initially, the STA (Swiss Tax Administration) agreed to disclose the information it held. However, a Swiss resident who is also an American citizen and expatriate challenged this. It went to the Federal Supreme Court in Switzerland.
“Too Late” for Information Already Disclosed
It’s too late for employees of “Category 1” banks UBS, Credit Suisse and others under investigation though. They cooperated from early in the investigation and handed over masses of data on their employees and third-party individuals. Currently, Swiss laws regarding employment details and data protection do not ban the communication of such data. However, the Data Protection Commission insisted that any named individuals should be pre-warned so they may appeal in good time. This clause led to this seminal court case.

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