Switzerland urges US court to reject tax data demand

SWITZERLAND HAS urged a US court to reject demands by US tax authorities for information about US clients of UBS, saying disclosure would violate its sovereignty and international law.

The Swiss government’s petition came in a federal court filing in Miami, where the US Internal Revenue Service (IRS) is seeking to force UBS to reveal the identities of 52,000 Americans suspected of using accounts at the bank to hide about $14.8 billion (€11.2 billion) of assets and evade US taxes.

“Switzerland’s laws prohibit the release of confidential information to foreign governments when the request has not been made through authorised intergovernmental channels,” the government said in its filing.

“If the court were to order UBS to produce evidence from Switzerland, and backed that order with coercive powers, the court would be substituting its own authority for that of the competent Swiss authorities, and therefore would violate Swiss sovereignty and international law.”

Echoing a similar filing earlier in the day from UBS, it said Swiss law also prohibits release of the information demanded by the IRS.

UBS acknowledged in February that it helped US clients conceal assets from their government. It agreed to pay a $780 million fine and has since identified about 320 of its American clients.

In its high-profile legal showdown with the Zurich bank, the IRS is employing a legal tool known as a John Doe summons, which allows it to investigate tax fraud by individuals whose identities are unknown because of bank secrecy.

“UBS does not dispute the legitimacy of the IRS’s interest in tax enforcement,” the bank said in its court filing. It said exchange of banking information should be handled through pre-existing legal treaties and not through the courts, however.

The bank said the summons, which it called unprecedented in its breadth, risked disrupting “the careful balance between the US interest in receiving tax related information from Switzerland and the Swiss interest in preserving its long tradition of financial privacy.”

In its separate filing, the Swiss government branded the summons an overly broad “fishing expedition” request that was inconsistent with existing treaties.

Federal District Court Judge Alan Gold in Miami will determine whether the summons should be enforced. The case could set an important legal precedent, since UBS is the first foreign bank to be served with a John Doe summons. – (Reuters)