Conflict Between Bern and Washington

Who will give in first? A Swiss delegation, led by Jurg Giraudi, the head of international tax agreements for the Federal Administration of Contributions, is in Washington to negotiate a new double taxation agreement between Switzerland and the United States. Bern needs this agreement, which will allow it to move along the path of quickly getting off the Organization for Economic Co-operation and Development’s (OECD) problem children gray list. But Washington must keep up appearances. And not give the impression of having capitulated to the demands of this “tax haven.”

During a visit to Washington in April, Hans-Rudolf Merz had given the go-ahead: in exchange for revising the double taxation agreement, Switzerland expected the American authorities to withdraw their complaints against UBS. In formulating his request, the Swiss president thought that he had detected the “understanding” of the American treasury secretary, Timothy Geithner. But, behind him, the Department of Justice and the U.S. tax authorities, who were at the root of the complaints against the Swiss bank, were furious: to them, the UBS case seemed exemplary. The 52,000 client names that they asked for have a symbolic value in the war that they have launched against American tax evaders, who were too inclined to place their money in undeclared foreign accounts.

In spite of this link, explicitly evoked by the Swiss, in theory nothing impedes the negotiations to sign a new agreement, regardless of the result of the proceedings launched against UBS before the court of law. The two parties have good hope of reaching an agreement before the end of the month. But the two cases will overlap again: the case before the federal court in Miami starts on July 13th. If this case goes as anticipated, the threat of a referendum will immediately hang over the agreement.

The opinion of the majority of observers is that the UBS case, to be symbolically important, does not justify, in Washington’s eyes, calling into question this new double taxation agreement, in which the United States notably obtains the relinquishment of the distinction between tax fraud and evasion – a Swiss particularity that is viewed particularly poorly across the Atlantic.

A Way Out?

For all that, the new agreement would not authorize a procedure such as that which is currently in force against UBS, a “call for the appearance of John Doe,” which is to say, an accused about whom one knows nothing, not even the name. Even if the interests of the American Treasury and the tax authorities are different, the Obama administration should carefully weigh the interests of a direct confrontation with Switzerland, while it works out a legal text with this country that does not make it right.

What way out? Yesterday, an article in the New Zurich Zeitung seemed to offer a serious argument: UBS would be ready to furnish the list requested by American authorities, but from which the names of the account holders and the account numbers would be expurgated. This would be one way for Switzerland to guarantee banking secrecy and, maybe, for Washington to save face.