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No clawback Bank fines not tax deductible, cabinet decides

Bank fines have been mounting up in recent years

(Martin Ruetschi)

Criminal fines imposed on corporations should not be tax deductible, but tax rebates could be claimed on illegally gained profits that a court has ordered a company to pay back, the Swiss government advised on Friday.

The cabinet was responding to a parliamentary motionexternal link to clarify the situation in light of a CHF2.6 billion ($2.8 billion) fine imposed by the United States on Credit Suisse bank earlier this year for the part it played in tax evasion offences.

The suspicion that the bank might try to claim tax expenses against the fine raised political hackles, prompting the motion from centre-left Social Democrat parliamentarian Susanne Leutenegger Oberholzer.

In June, parliament ordered the government to give its opinion and recommendations on the issue.

“The deductibility of such fines under tax law would reduce the punitive effect of the fines. The burden of the ensuing tax reduction would indirectly have to be shared by taxpayers, which is inconsistent with the purpose of a fine,” read a government statement issued on Friday.

However, the so-called "disgorgement" of illegally obtained profits should be treated differently, the cabinet added. “As their purpose is not punitive, they constitute business-related expenses,” the statement read.

The cabinet said it would be necessary to update Swiss corporate laws to draw a clear legal distinction about what constitutes a proper business related expense.

In line with assumptions

The findings were in line with Credit Suisse’s own assumptions after receiving the huge US fine in May.

Speaking at a press conference just after receiving the fine, Credit Suisse chief financial officer David Mathers said: “The normal approach is that fines and penalties are not tax deductible. Disgorgement of profits and certain other settlements are tax deductible.”

“In this circumstance, around $2 billion of the $2.8 billion in total relate to a fine and a penalty, and therefore we are assuming they are not tax deductible. Around $800 million do have some tax offset against it.”

Some 13 other Swiss banks, that are under direct investigation from the US Department of Justice, are still waiting to hear the extent of their punishment if found guilty of aiding tax cheats. and agencies

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