The Implications of the Swiss Tax Treaty

The acting attorney general for the Tax Division of the Justice Department is pushing the U.S. Senate to ratify a tax treaty signed in September of 2009. The treaty was between the United States and Switzerland, and it would amend Article 26 of the existing Swiss-U.S. tax treaty to implement the OECD standard from the OECD Model Tax Convention. The OECD standard requires the contracting countries to exchange “such information as is foreseeably relevant” for carrying out the provisions of the tax treaty and enforcing domestic tax laws.

Senator Rand Paul has been almost single-handedly preventing not just this tax treaty, but also four others that could flout privacy rights of U.S. individuals and ex-pats. There has been a recent push to move the blocked treaties forward, though, and if this does occur, people with offshore accounts could find themselves with an even greater likelihood that their financial account information will be turned over to the United States government.

The Department of Justice is aggressively pursuing every possible avenue to find every U.S. accountholder with undeclared offshore funds. While there are amnesty programs you can participate in to report your undeclared accounts if you have not yet done so, these programs result in the imposition of fines and penalties (albeit lesser penalties and the ability to eliminate the chances of potential criminal prosecution).

Furthermore, if you are already under investigation, you cannot participate in the voluntary disclosure programs. Because of the very significant risk that the government will find out about your offshore accounts, now is the time to speak with a Washington DC criminal tax lawyer.

Ratification of Tax Treaty Could Provide DOJ With More Power Against Swiss Banks

The Switzerland-U.S. income tax convention was first signed in October 1996. Following the signing of the treaty, Swiss Banks commonly refused to cooperate with U.S. investigations of offshore tax evasion because the banks claimed their country’s own privacy laws prevent this type of cooperation.

In September of 2009, the U.S. and Switzerland signed an agreement to modify the existing tax treaty and make clear the OECD standard applies, thus obliging Swiss banks to cooperate with authorities. Switzerland ratified the Swiss Protocol included in the treaty on March 5, 2012.

However, Rand Paul has led a charge blocking Senate ratification of the treaty, citing privacy concerns both with the treaty and with the Foreign Account Tax Compliance Act (FATCA).

As long as the treaty remains unratified, the Tax Department of the Justice Division does not yet have full authority to get the detailed information it needs from Swiss banks about unreported funds. The DOJ has, however, been encouraging banks to provide that information voluntarily by allowing the banks to take part in a Swiss Bank program.

The Swiss bank Program lets banks fearful of criminal charges for tax evasion come forward and enter into non-prosecution agreements- provided the banks pay a fine and turn over account-by-account information on clients with undeclared offshore funds. Three banks have already participated and the IRS anticipates as many as 80 Swiss banks will enter into these types of agreements.

Whether the treaty moves forward or not, your bank may give up your information. If the treaty does move forward, the DOJ just gets another tool to try to get your account details. Talk to a criminal tax lawyer in Washington DC now about what you options are to protect yourself as authorities take ever-increasing steps to find your account information.