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Switzerland Races To Find 'Lex USA' Plan B

by Ulrika Lomas,, Brussels

25 June 2013

The Swiss Federal Council has begun the unenviable task of finding an alternative solution to the "Lex USA" legislation, to resolve the longstanding tax dispute with the US, over the precise role of Swiss banks in assisting US clients in evading their US tax obligations.

The move follows the recent collapse of the Lex USA bill in the Swiss National Council. Designed to draw a line under the past disagreements, the bill would have authorized the Confederation’s banks to cooperate with the US authorities and to make available the information necessary to safeguard their interests.

After the vote, the Swiss Federal Council provided its reassurances to the US Department of Justice (DoJ) that the parliamentary decision does not signal a rejection of efforts to find a solution to the problem. Indeed, both the Swiss National Council and the Swiss Council of States issued a declaration underlining the need for a swift resolution.

Switzerland’s Finance Minister Eveline Widmer-Schlumpf has already hinted that the Federal Council might base an alternative solution on Article 271 of the Confederation's Penal Code. This provision enables Swiss firms to act on behalf of a foreign state. The Federal Council is therefore examining the possibility of adopting a general executive order, allowing institutions to assist the US authorities in this way.

According to NZZ newspaper, Swiss Foreign Minister Didier Burkhalter made clear that finding a solution to the disagreement was a governmental, rather than a parliamentary, task from the very outset. Burkhalter stressed the importance of the parliamentary message to the US, emphasizing that this would help to prevent a further escalation of the row. Failure to find a solution will mean that Switzerland must face an uncomfortable summer ahead, fraught with difficulties, he added, noting that the days and weeks ahead will prove decisive.

Providing its legal comments on the Swiss National Council's definitive rejection of the Lex USA bill, Withers LLP explained that the deal "provided a mechanism for Swiss banks to bypass secrecy rules and hand over data on US taxpayers, bank employees and external advisers required by the US tax authorities under the FATCA rules." Withers emphasized that US account holders in Switzerland will not "rest easy whilst the situation remains unresolved."

Michael Parets of Withers Zurich said: "It is hard to make a call on what may come next in the negotiations but, in spite of this impasse, US taxpayers, bank employees, and external advisers who have broken US rules remain at risk. Even in the absence of an agreement, the US authorities will continue to pursue individuals through the various other means they have at their disposal."

Jay Rubinstein of Withers Zurich added: "Whether the US Government pursues its investigations into Swiss banks with or without Lex USA, it will soon be too late for US persons with present or former undisclosed Swiss bank accounts to voluntarily disclose those accounts with any confidence that they will not be prosecuted. Once an account holder is under investigation, the voluntary disclosure route is no longer available."

TAGS: individuals | compliance | Finance | tax | investment | tax compliance | tax avoidance | mining | interest | FATCA | employees | legislation | Switzerland | United States

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