Switzerland's newspapers have welcomed Friday's out-of-court settlement between UBS and the United States tax authorities, but warned that a rough road lay ahead.This content was published on August 3, 2009 - 11:00
US district judge Alan Gold agreed to cancel a trial that was supposed to begin on Monday into an Internal Revenue Service (IRS) demand for the confidential information of 52,000 wealthy UBS clients – a move that would violate Swiss law.
According to media reports, under the proposed settlement the IRS would withdraw that demand and request data on 5,000 clients believed to have willingly concealed assets in Swiss banks to avoid paying taxes. UBS would pay no fines, which had threatened to soar to $1 billion (SFr1.07 billion) or more, the reports stated.
"The agreement puts out a fire that had threatened to destroy UBS and seriously alter our relations with Washington," Le Temps said in Geneva.
"In the end common sense prevailed," hailed the Neue Zürcher Zeitung (NZZ). "The return to proven, bilaterally supported procedures in cross-border information exchanges is an achievement for the federal government."
Right to appeal?
While the exact details of the settlement will not be known until later this week, commentators wondered how the process of providing the IRS with administrative assistance in cases of specific tax-fraud investigations would weigh on Switzerland's judicial system.
Would people have the right to object to their account information being handed over, asked Le Temps.
"The accord will test the Swiss system's right of appeal," it added. "The agreement is fragile and will demand a lot of finesse and judicial tact to reach its objective."
Bern's Der Bund newspaper said the deal had allowed the Swiss to "save the furniture – but at what price?" and pointed out that just days before the deal was announced the US authorities had said there was no chance for any settlement.
"The US wanted to force Switzerland into making further concessions," it said.
Justice Minister Eveline Widmer-Schlumpf has warned that the deal could still crumble if it violates Swiss law – a signal to US authorities that the final details must still make room for compromise.
Nevertheless, "UBS's mistakes have opened a gaping hole in banking secrecy that can no longer be closed," Le Temps lamented. "The US has blown up a dam that was considered unshakeable and without weakness."
It said it was high time "that a durable and solid strategy be worked out that lets banking secrecy evolve after its virtues were diverted by the country's biggest bank".
Der Bund, like Le Temps, also wondered what would remain of Swiss banking secrecy once the dust had settled.
"It is certain that the pilot case of UBS has alarmed the entire banking world," Der Bund said. "No bank and no account holder should feel beyond the US tax authorities – that is the ultimate mission of the IRS."
The NZZ noted that other countries were certainly watching. "The question remains how banking secrecy – important for private Swiss banks – can stay out of the line of fire of foreign tax authorities," said the editorial.
It suggested banking secrecy be brought back to its essence – protecting the private sphere – while others argued for the introduction of a tax on capital income.
"Such a tax has the advantage of being able to send collected funds to foreign tax authorities without having to provide names."
For the Tribune de Genève the most nagging questions were those over what effect the ordeal will have on the Swiss economy and employment figures.
"Stay prudent!" it warned. "In Switzerland quality of life and purchasing power depend largely on a very strong financial sector."
It concluded: "Even if this is over on Friday without too much damage, this crisis period between Bern and Washington risks strengthening Switzerland's competitors in the financial marketplace."
Tim Neville, swissinfo.ch
What happens now?
Even though the parties involved will not say anything about the contents of the basic agreement announced on Friday, there are outlines how a deal might appear.
The United States would ask Switzerland again for legal assistance in gaining access to UBS client details. The Swiss foreign ministry confirmed this after a report published in the NZZ am Sonntag newspaper.
According to the newspaper, the head of the Swiss negotiating team, Swiss State Secretary Michael Ambühl, said: "Swiss legislation is protected because the US has pledged to act according to the current agreement and ask for judicial assistance again."
Further UBS client details may be handed over to the US justice authorities when there is reasonable suspicion. Justice Minister Eveline Widmer-Schlumpf told the Südostschweiz am Sonntag newspaper that simple suspicion was not enough.
This year's Swiss president, Finance Minister Hans-Rudolf Merz, said in the SonntagsBlick newspaper he did not rule out a further amendment to the double-tax agreement with the US, which was revised in June.
It remains unclear what concessions Switzerland has made. The US Justice Department had earlier made it clear that any out-of-court settlement had to include a "significant number" of UBS client details.
UBS has not commented on the details of the agreement.
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