UBS Deal with U.S. Threatened by Vote in Swiss Lower House
Switzerlands lower house voted on June 8 to reject a bill that would have allowed the Swiss government to provide the United States with names of UBS account holders allegedly dodging United States taxes. The vote has jeopardized a deal with the U.S. government concerning a tax battle with UBS AG, a giant global financial services company headquartered in Basel and Zurich Switzerland.
The U.S. and Switzerland reached a deal in August last year to settle a case involving hidden offshore accounts at UBS AG. The U.S. accused UBS of having helped thousands of Americans avoid paying taxes in the U.S by setting up offshore accounts. UBS admitted wrongdoing and agreed to provide the U.S. Internal Revenue Service (IRS) with the names of 4,450 American account holders by August. The U.S. has alleged that UBS AG has helped Americans hide approximately $20 billion.
A Swiss court threw a wrench in the works, however, in January when it ruled that the deal broke Swiss law. In April, the government presented a special bill that would have laid the legal groundwork to allow it to hand over the names. The Swiss Senate approved the bill in May.
On June 8 the IRS said it is prepared to reopen its case against UBS AG if the Swiss fail to meet the August deadline. An IRS spokesman indicated that the IRS is ready to pursue any legal options available if the Swiss do not provide the information required.
The Swiss government had hoped to put its dispute with the U.S. to rest and the rejection of the bill in the lower house puts a damper on that hope. If an agreement cannot be reached before the Swiss parliament adjorns later in June, the deal between the U.S. and UBS could be voided. These developments also complicate UBS AGs efforts to rehabilitate its image and improve its wealth-management department. The wealth-management unit which has seen a significant loss of clients as a result of the U.S. tax squabble.
The Swiss parliament is seeking a compromise that could lead to another vote on the bill in both chambers. There is obviously considerable time pressure to obtain another vote. The U.S. has indicated that it will not extend the August deadline. If Switzerland does not hand over the names, the U.S. could begin a new tax case against UBS AG.
The current tax case against UBS AG has been particularly damaging to the banks wealth-management unit. The U.S. case has opened the door to pressure from other European states to urge Switzerland to loosen its bank-secrecy laws and relinquish its status as a tax haven. UBS AG has lost about 1,500 private bankers and the banks wealth-management department has experienced an outflow of almost $200 billion since 2008.