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No more secrets?

Switzerland and the US have been at odds for the past couple of years over Swiss banking secrecy laws and claims by the US Inland Revenue Service that certain Swiss private banks were helping US citizens to avoid paying tax. <p>"In accordance with....[an] agreement between the United States and Switzerland, the IRS will submit a request for administrative assistance pursuant to the existing US-Switzerland Double Taxation Treaty to the Swiss Federal Tax Administration (SFTA). This request will seek information relating to certain accounts of US persons maintained at UBS in Switzerland. It is expected that approximately 4,450 accounts will be provided to the SFTA in response to this Treaty request," UBS said in a statement on its website. <p>What that means, in laymen's terms, is that the US and Switzerland finally called time on a row that threatened to create significant diplomatic problems between the two countries and the account details of 4,450 Americans will be handed over to US tax authorities. <p>In November 2008, the US Department of Justice indicted Raoul Weil, the then Chairman and Chief Executive Officer of Global Wealth Management & Business Banking at UBS, with helping thousands of US citizens to conceal something like $20 billion in bank accounts in Switzerland.<p>Weil, currently living in Switzerland, is wanted by the US Department of Justice and is listed as a fugitive. <p>Meanwhile, former UBS employee Bradley Birkenfeld, the senior private banker turned whistleblower whose inside knowledge of Swiss banking secrecy gave the US authorities an unprecedented inside view of how the country's laws work, was sentenced to three years in jail for helping Americans evade taxes. <p>"Birkenfeld got slammed because, for all the good he did, he didn't tell on himself," said Bloomberg news columnist Ann Woolner. <p>"The Birkenfeld sentence stands as an insult to any claim that the government wants whistleblowers to step up. Fear of retaliation and career suicide make it hard enough to rat on your boss. Now you can add the possibility of prison time as payment for your effort," she said. <p>What it means for the Middle East was summed up by Wegelin & Co Managing Partner Konrad Hummler who wrote in an investment commentary on the private bank's website, titled: 'Farewell America', "Even trickier is the question of how far the beneficiaries of legal entities are liable to withholding tax. Clearly liable, according to the text [of the 2001 "Qualified Intermediary" agreement], are active businesses; an American company holding securities in Switzerland, for example. Trusts, institutions and foundations are exempt if they meet certain -- naturally highly complex -- conditions.<p>"This was probably the trap in which the UBS clients were caught. Once the trap had closed, the American tax authorities shouted, "Abuse, fraud (and the likeC*)!" They set the trap themselves. Matters become really awkward when an impeccably non-American legal entity suddenly becomes 'contaminated' by a US person. Let's assume that Mr Abdullah has named his son Omar, as well as some of his other adult sons, as a beneficiary of his trust. As American tax law has turned him into a US person, Omar renders the trust liable to tax, and when Mr Abdullah dies, this may mean that the entire inheritance becomes liable to US estate tax, possibly at 45 per cent, for Mr Abdullah was extremely wealthy. Perhaps, and then again, perhaps not. But that doesn't matter -- the QI [Qualified Intermediary] should have known.

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Publication:Banker Middle East
Date:Oct 6, 2009
Words:590
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