Tuesday, May 05, 2009

How information exchange agreements may restrict access to information

The Swiss government has made an intervention in the case in Florida, in which the US Internal Revenue Service has asked Swiss Bank UBS to divulge details of bank accounts of US citizens suspected of tax evasion. According to press reports (e.g. by Reuters) the Swiss government says that the US court should not order UBS to divulge this information because such an order would violate Swiss sovereignty and international law.

Apparently, the reasoning goes as follows:

1. the information is held in Switzerland, so to require UBS to hand it over would force UBS to break Swiss law, and would be an interference with Swiss sovereignty;

2. the information can only be handed over through proper channels and procedures, in this case the information exchange provisions in the Swiss-US tax treaty;

3. an order by a US court would amount to unilaterally circumventing the agreed procedures in the treaty;

4. unfortunately, however, the tax treaty information exchange provisions do not allow this information to be provided.

To which the only reply must be "You cannot be serious"!

Tax havens are typically fond of saying that they have no obligation to help other states to enforce their tax laws, it is up to them. TJN is willing to go along with this argument to the extent of agreeing that tax authorities could do far more to obtain information without needing to rely on international treaties. This is especially the case for countries with large international finance centres, such as the UK and the US, which can simply oblige any bank operating within their jurisdiction to divulge relevant information. Indeed, the UK began doing so in 2005 when HMRC started to ask the Tax Commissioners for broad disclosure orders against banks operating in London. The IRS is asking for a similar `John Doe' order against UBS. The Swiss government is now making the reverse argument. It's saying that tax authorities can ONLY use internationally agreed procedures to obtain information from abroad. And if the information does not come within those agreed procedures, you can't get it at all.

Contributed by guest blogger Professor Sol Picciotto, senior adviser to TJN


Post a Comment

<< Home