US-Swiss UBS Deal Signed; 4,450 Names To Be Delivered

by Glen Shapiro, LawAndTax-News.com, New York

21 August 2009

An agreement has been signed between the US and Switzerland, ending the ongoing legal dispute over UBS, in which the US sought the disclosure of some 52,000 UBS account holders’ names in its campaign against tax evasion through accounts held abroad.

A press release issued by UBS AG states that the Swiss bank and the US Internal Revenue Service (IRS) have signed a settlement agreement regarding the John Doe summons issued on July 21, 2008; the main terms of this agreement and that signed between the US and Switzerland are as follows.

No financial settlement will be paid by UBS. Back in February, UBS was fined USD780m in a related legal action; no such fine is to be imposed under the new agreements. The present court action filed with the US District Court will be dismissed – although unsurprisingly, this is subject to conditions.

The crux of the agreements is that details of approximately 4,450 accounts are to be handed over to the IRS – far short of the 52,000 names originally sought. However, the process is to be operated via the existing US-Swiss double taxation agreement (DTA), thus bypassing the problem faced by UBS of breaking Swiss banking secrecy laws – a main sticking point in reaching a settlement. The IRS will therefore submit a request for administrative assistance under the terms of the DTA, seeking information relating to certain accounts of US persons maintained at UBS in Switzerland. Details of those accounts will then be passed to the Swiss Federal Tax Administration, which will decide which of those accounts should be disclosed to the IRS, subject to judicial review.

UBS for its part will notify affected account holders and encourage them to take advantage of the IRS’s voluntary disclosure practice, and will also encourage them to instruct UBS to send their account information and documentation to the IRS. Provided UBS meets these obligations by December 31, 2009, the John Doe summons will be withdrawn, with prejudice, in relation to any accounts not covered by the DTA request.

As for accounts that are the subject of the DTA request, so long as the actual or anticipated delivery of information in relation to those accounts is made to the IRS by August 24, 2010, the US will withdraw the John Doe summons, again with prejudice, on condition that such information does not differ significantly from the expected results of the agreements.

If the August 24, 2010 deadline is not met, the US and Swiss governments will confer and consult in order to consider alternative mechanisms to achieve the expected levels of account information exchange expected to occur through the DTA request. The John Doe summons will likely remain in place in such circumstances in relation to those accounts covered by the DTA request but not so far disclosed to the IRS.

UBS Chairman Kaspar Villiger said: "This agreement helps resolve one of UBS’s most pressing issues. I am confident that the agreement will allow the bank to continue moving forward to rebuild its reputation through solid performance and client service. UBS welcomes the fact that the information exchange objectives of the settlement can be achieved in a lawful manner under the existing treaty framework between Switzerland and the United States."

IRS Commissioner Doug Shulman noted that UBS customers could still take advantage of the IRS’s current amnesty disclosure program, which ends on September 23. "The letter they receive from the bank will not disqualify them from coming forward to the IRS under our voluntary disclosure program," he said. "But once the Swiss government sends us the name, all bets are off."

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