Swiss close to final approval of UBS-U.S. deal

The logo of Swiss bank UBS is seen at the company's office at the Bahnhofstrasse in Zurich in this July 1, 2009 file photo.

ZURICH (Reuters) - A Swiss tax deal with the United States, crucial to the future of Swiss bank UBS, moved closer to legislative sign-off on Tuesday after the lower house of parliament backed the deal.

Swiss politicians, however, continued to play parliamentary ping-pong with the tax treaty which is expected to draw a line under a legal case that threatened to bring UBS, the country's biggest bank, to its knees.

The U.S. government agreed last year to drop tax evasion charges against UBS after Switzerland promised it would transfer the details of 4,450 clients UBS helped to dodge taxes, a move that would breach existing bank secrecy laws.

Switzerland's lower house -- where the two largest parties, SVP and Social Democrats (SP), had so until now rejected the treaty -- approved the deal in its second vote on the issue after the SVP faction shifted position.

But representatives called again for a referendum, sending the deal back to the upper house and delaying a binding decision as both houses have to agree all points to get the deal through.

Both houses are due to take their third votes on the matter on Wednesday. If they fail to reach agreement, a special committee will be formed to try and iron out differences between the houses before they take final votes, probably on Thursday.

"The referendum is flawed from a legal point of view," said the think tank economiesuisse, calling on parliament to remove the hurdle. "Only then will a damaging legal conflict with our important trading partner be cleared up."

A call for a referendum would delay the handover of data beyond an August deadline, prolonging the uncertainty that prompted UBS clients to leave the bank in droves, although Swiss negotiators could try to persuade U.S. counterparts to hold off on possible countermeasures.

SVP leader Toni Brunner signaled his party might be prepared to give way on the referendum issue eventually to get the tax treaty through parliament.

"It's not a killer criterion," Brunner told Swiss national television.

Shares in UBS closed 2.0 percent higher in Zurich, outperforming a 1.1 percent rise in the Stoxx 600 European banking index.

POTENTIAL DANGERS

If the deal collapses, analysts said, it could be disastrous for UBS and potentially for other Swiss banks if the U.S. decided to retaliate, punishing a financial sector that accounts for 12 percent of the Alpine nation's economy.

"We expect that the Swiss government will honor the agreement it signed and will do so within the agreed upon timeframes," said U.S. Internal Revenue Service spokesman Frank Keith. "We remain prepared to use all available options, including the U.S. courts, should the present efforts fail.

A possible referendum could take place at the start of 2011 at the earliest, a parliament spokesman said, provided the 50,000 signatures needed to force a popular vote on the issue were collected within 100 days of parliament's decision.

Even if a referendum were backed, Berne and Washington could seek a diplomatic solution as the United States has already said it recognizes Switzerland has a political process it must follow, said Sarasin analyst Rainer Skierka.

"I think parliament should back the treaty without a referendum because it would send a clearer signal that it is an exceptional contract in Swiss law and not one that other countries can follow," he added.

Swiss Justice Minister Eveline Widmer-Schlumpf highlighted once again the risks for Swiss banks and the economy should the deal be rejected.

"Today, our political credibility and reliability are also at stake," she said.

UBS has already handed over the data to Swiss tax authorities for processing, as required by the United States under the agreement, but a legal loophole prevented the Swiss passing on the data without parliamentary backing.

A Swiss court in January blocked the data transfer, forcing the government to move to bypass that ruling with a legal patch that required parliamentary approval by both houses.

Switzerland has passed on to the U.S. 500 accounts of UBS clients who consented, the Swiss federal tax office said, adding it had already completed processing of 2,900 dossiers.

(Additional reporting by Kim Dixon in Washington; Editing by Erica Billingham)