Under the amended agreement, the US authorities will be able to ask the Swiss to disclose names of the US taxpayers at a bank who exhibit certain "behavioral patterns" indicating tax evasion under US law. Previously, information would only be provided if the foreign tax authorities were in receipt of the name or banking details of the suspected taxpayer concerned.
If the deal comes into force, Swiss banks will also be required to ensure that foreign clients are tax-compliant in their home countries. However, this deal will only apply to the US authorities.
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Swiss Finance Minister Eveline Widmer-Schlumpf defended the new law, which must be ratified by the US Senate, saying administrative assistance would only be provided in cases of strong evidence of wrongdoing and would not be forthcoming on the basis of information obtained from stolen tax data.
Swiss Banker’s Association CEO Claude-Alain Margelisch welcomed the approval and said it represents an "important step" for Switzerland towards finding a solution to the tax dispute with the US.
The US tax authorities are investigating a dozen Swiss banks, including Credit Suisse, for illegally assisting Americans in the US to hide money offshore from the IRS, the tax arm of the US. The tax probe had already led to the collapse of oldest Swiss bank Wegelin last month.
"We expect that this amendment will pave the way for the treaty and bring us closer to a global agreement with the US about the Swiss financial center," Federal President Eveline Widmer-Schlumpf said after the decision.
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By GlobalDataThe move is bound to further weaken Switzerland’s status as a secret tax haven, which is said to have US$2.1 trillion in foreign money under management. Weakening of the banking secrecy rules may also result in mass capital and client exodus and particularly hit the smaller banking institutions in the Switzerland.
However, the deal became imperative giving the menacing impact the ongoing US tax probe has started to show on the performance of the Swiss banking groups.
Many believe that the deal will permanently resolve the longstanding issue that came to a head in 2009, when UBS admitted to wrongdoing and had to pay US$780 million to settle the tax probe.
Contrary to this widely held view, we believe that US may not actually rush to sign any such accord since US may not agree to Switzerland’s demand of dropping all legal action against its banks in the US as the US appears to hold all the cards.
The relentless tax probe has already enabled the US to gain access to large chunk of information about the policies of many Swiss private banks. It has also forced large number of US taxpayers having secret accounts in Swiss banks to come forward and disclose their previously undeclared assets to get off the hook of the US agencies with minimum penalties, tilting the case heavily in favor of the US.
So, for the 11 Swiss banks, which are currently being investigated by the US Justice Department, the deal may not exactly be as sweet as many expect. We believe that the US will prefer penalizing the erring Swiss banks heavily in a bid to minimize their mammoth fiscal deficit, which stands at around US$1.27 trillion currently.
