By Gavin Scott
There have been a number of recent victories for the United States in its tax battle against Switzerland. The Alpine state has signed up to FATCA, Swiss banks are agreeing to pay large penalties and more information is being handed over to the US authorities.
The battle dates back to 2007, when the US Department of Justice (USDoJ) threatened to prosecute UBS bank for helping US taxpayers hide assets and income away from the Internal Revenue Service (IRS). UBS admitted to helping Americans evade tax and in 2009 paid a $780 million fine and agreed to hand over 4,450 client names.
This marked the beginning of the end for Swiss banking secrecy.
The USDoJ then began using the same tactics against other Swiss banks. Fourteen “category one” banks, including Credit Suisse and Julius Baer, are under investigation and face possible prosecution. Another 100 or so banks are prepared to pay enormous penalties to avoid a similar fate.
Some category one banks have reportedly begun transferring information to the US authorities. A Credit Suisse spokesman confirmed on July 26 that the government had given it permission to hand over information on its “leaver list” of US clients to avoid criminal charges.
Leaver lists are American clients who moved funds out of Swiss banks after UBS reached its agreement with the USDoJ in 2009, whether to other banks in Switzerland or out of the country.
Client names and account numbers are excluded, but the data will include the number of clients and assets moved, and identity of the destination banks. This will enable the US to build criminal cases against the receiving banks.
The leaver list from UBS revealed that much of the money went to another Swiss bank, Wegelin. The US then targeted this bank, which had to pay a $58 million penalty and closed down as a result.
An agreement reached between the US and Switzerland at the end of August allows most Swiss banks to negotiate their own deals with the US to avoid prosecution. The USDoJ set out a programme specifying a scale of penalties and disclosure requirements.
Penalties range between 20% and 50% of the untaxed American assets held by the banks between 2008 and the end of 2013. The higher penalties are for accounts opened after February 2009.
Banks have no choice if they want to draw a line under the disagreement with the US, and around 100 reportedly wish to participate. The Swiss authorities say they will not be allowed to disclose client data unless they receive a treaty request for administrative assistance, but a USDoJ statement says it will insist on “detailed information on an account-by-account basis”.
This programme is not available for the 14 banks already under investigation, though it may pave the way for them to reach settlements.
The Swiss Bankers Association has apologised for helping international clients evade tax and damaging Swiss banking’s reputation.
In early September, President Patrick Odier told a press conference that, although it was not illegal to accept untaxed deposits, “we acted wrongly and we displayed wrong conduct”.
The Swiss banking strategy is now “tax compliance, international standards, growth through open markets and fair competition”.
The total penalties to be imposed are not yet known, but it is bound to have an impact on the banking sector, and it is expected that some banks will not survive. A study carried out by a Swiss business university predicts that around a quarter of Swiss banks will have closed their doors within three years.
Most recently, on September 27, Swiss parliament voted to comply with the US Foreign Account Tax Compliance Act (FATCA), which starts on July 1 2014.Swiss banks will have to provide information on all accounts owned by US nationals, regardless of where they live.
FATCA is proving unpopular, not only with financial institutions but also with American expatriates. The US is unusual in that it continues to tax its citizens even when they are resident abroad. This also applies to green card holders.
FATCA is worrying expatriates to the extent where many are considering giving up their American citizenship, which is the only way to escape the long arm of the US taxman. Besides concerns about how much the government will know about their overseas assets, their banking and investment options are being limited, with some institutions now turning away US clients.
A total of 1,131 Americans renounced their US citizenship in the second quarter of 2013 – an increase of almost 500% on the same period last year.
This is not just an American issue. Switzerland is also inching closer to exchange of information with EU countries, and this is the direction the world is moving in.You should make sure your money is in the right place today, and in legitimate tax efficient structures, to have peace of mind for the future.
Gavin Scott, Senior Partner of Blevins Franks. Gavin has been advising expatriates on all aspects of their financial planning for more than 20 years. He has represented Blevins Franks in the Algarve since 2000. Gavin holds the Diploma for Financial Advisers. Blevins Franks Financial Management Limited is authorised and regulated by the Financial Conduct Authority in the UK, reference number 179731. Where advice is provided overseas, via the Insurance Mediation Directive from Malta, the regulatory system differs in some respects from that of the UK. | www.blevinsfranks.com