Strengthening Procedures Against Tax Evasion

by Henry Christensen III *

The events involving Union Bank of Switzerland ("UBS") have resulted in federal criminal prosecutions, a deferred prosecution agreement between the U.S. Department of Justice and UBS and a separate global settlement between the U.S. Department of Justice, the Swiss Government and UBS. The U.S. Congress responded to the scandal by enacting a new host of anti-abuse and anti-avoidance measures known as The Foreign Account Tax Compliance Act ("FATCA"). The U.S. has continued to pursue smaller Swiss banks and Liechtenstein banks.

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Although the case against UBS was the first to receive notoriety, other Swiss banks have also been prosecuted for assisting U.S. taxpayers violate U.S. tax laws. On January 3, 2013, Wegelin & Company, the oldest private Swiss bank, pleaded guilty to conspiring with U.S. taxpayers to defraud the Internal Revenue Service and evade U.S. taxes by hiding funds in undisclosed Swiss bank accounts. [U.S. v. Wegelin & Co., No1:12-CR-0002-04 (S.D.N.Y. Mar. 8, 2013).] The District Court for the Southern District of New York imposed a $58 million fine on Wegelin & Company, and highlighted the bank's "extreme willfulness" and goal which was to "capture the illegal U.S. cross-border banking business lost by," UBS.["Swiss Bank Wegelin Ordered to Pay $58 Million," taxanalysts® Tax Notes Today, March 5, 2013.] This demonstrates that UBS is certainly not the only bank whose conduct involving U.S. taxpayers will be scrutinized in the future. Indeed, this case may also set forth the precedent for pursuing cases against foreign banks for violating U.S. law, even where a bank's conduct does not violate its own internal law.

New Bilateral Treaties Between Switzerland and the United Kingdom, Liechtenstein and the United Kingdom, and Switzerland and Austria

During 2010, 2011 and 2012, financial secrecy was preserved, but offshore tax evasion significantly eroded, by significant new bilateral treaties negotiated by Switzerland and Liechtenstein.

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On August 24, 2011, the United Kingdom and Switzerland announced that they had reached an agreement regarding accounts of United Kingdom taxpayers in Swiss financial institutions. The agreement was signed on October 6, 2011 and entered into force on January 1, 2013. [Agreement between the Swiss Confederation and the United Kingdom of Great Britain and Northern Ireland on cooperation in the area of taxation, available at http://www.hmrc.gov.uk/taxtreaties/swiss.pdf (hereinafter, "UK-Swiss Withholding Agreement").]

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The United Kingdom and the principality of Liechtenstein signed a tax information exchange agreement on August 11, 2009, which was issued in conjunction with a Memorandum of Understanding Relating to Cooperation in Tax Matters. [Memorandum of Understanding and subsequent joint declarations by the Government of the Principality of Liechtenstein and HMRC available at http://www.hmrc.gov.uk/disclosure/liechtenstein-disclosure.htm.] This Memorandum of Understanding concerns the introduction by Liechtenstein of a five-year taxpayer assistance and compliance program as well as the introduction by HMRC of a five-year special disclosure facility for persons wishing to bring their U.K. tax affairs into compliance...

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On April 13, 2012, Switzerland and Austria signed a withholding tax agreement similar to those between Switzerland and the Germany and the U.K., respectively. ["Switzerland and Austria sign withholding tax agreement," International Taxes Weekly (RIA), April 17, 2012. See "Austria, Switzerland Sign Bilateral Withholding Tax Agreement," taxanalysts® Worldwide Tax Daily, April 16, 2012.] The agreement was approved by the Swiss Parliament on May 30, 2012 and by the Austrian parliament on July 6, 2012 and entered into force on January 1, 2013. The flat tax rates for Austrian citizens with Swiss bank accounts is 15 to 38 percent (in lieu of disclosure to the Austrian authorities) and future investment income will be withheld upon at a rate of 25 percent.

 

* Henry Christensen III is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm's New York office. He heads the private client practice in New York, as well as the international private client practice. Mr. Christensen is one of the most prominent private client attorneys in New York and is especially well known in the area of international estate planning. He represents some of the wealthiest individuals and families in the United States and around the world. He advises families and their closely held businesses on such legal matters as U.S. and foreign tax planning and disputes, wealth transfers, company structure, charitable foundations, the merging and selling of private companies, and trust and estate matters, including fiduciaries and individuals in disputes. He conducts an active Surrogate's Court and Tax Court litigation practice, and his practice also includes tax, tax controversy, tax exempt organizations, corporate, litigation and cross-border work. He represents well-known families in England, Germany, Switzerland, Italy, Saudi Arabia, South Africa, Brazil, Colombia and Venezuela, among other countries, and has a very extensive practice in cross-border and multinational tax and estate planning advice for 21st century families with family members subject to differing tax regimes. Mr. Christensen is immediate past president of the International Academy of Trust and Estate Counsel, a member of Board of Regents of the American College of Trust & Estate Counsel (ACTEC), and an adjunct professor of NYU Law School and the University of Miami Law School, teaching international estate planning. He regularly lectures throughout the United States and internationally on developments in U.S. and international taxation, disputes resolution, anti-money laundering and other current topics important to the profession. Mr. Christensen is the author of International Estate Planning, Second Edition (LexisNexis).

Information referenced herein is provided for educational purposes only. For legal advice applicable to the facts of your particular situation, you should obtain the services of a qualified attorney licensed to practice law in your state.

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