Strong Swiss-U.S. ties could help UBS settle tax row

By Emma Thomasson

ZURICH (Reuters) - A history of strong relations between Switzerland and the United States should help Swiss bank UBS find a settlement in a damaging U.S. bid to access data of wealthy Americans trying to dodge taxes.

"This UBS case is obviously a very unwelcome episode in otherwise amicable relations," Martin Naville, chief executive of the Swiss-American Chamber of Commerce, told Reuters.

UBS faces a court hearing in Miami next week after refusing a demand by the U.S. Internal Revenue Service to disclose data on 52,000 American holders of secret Swiss bank accounts to U.S. tax authorities, which would breach Swiss bank secrecy.

The Swiss government said on Wednesday it would seize the UBS data itself if necessary to defend bank secrecy, accusing the IRS of seeking to "provoke international conflict."

Naville said the two countries have close economic and business ties and Switzerland represents U.S. interests in Iran and Cuba and is home to many multilateral institutions like the World Trade Organization.

"There is a lot to lose for everybody so I have a justified hope that people will do the right thing at the end of the day," he said. "Why go through all the hassle of losing good relations with Switzerland for very, very little added gain?"

Swiss Defense Minister Ueli Mauer, from the nationalist Swiss People's Party, has suggested Switzerland should link a favorable deal in the UBS case to an offer to take in detainees from the U.S. prison at Guantanamo Bay in Cuba.

During a visit to Washington, Swiss Economy Minister Doris Leuthard told Reuters in an interview on Tuesday she would stress in talks with the U.S. government the importance of bank heavyweight UBS for the global financial system, although she expected UBS to pay a price in the tax dispute.

The Swiss wealth management giant, which employs nearly 27,000 people in the United States or one third of global staff, lost billions of dollars in the global financial crisis and had to be bailed out by the state in October.

PROTRACTED TENSTION

The ongoing U.S. tax case is distracting from its attempts to restructure and turn its business around and Leuthard said problems for UBS could have implications for global financial stability like the collapse of Lehman Brothers.

"If UBS were to lose its U.S. license, it would have repercussions on its viability," said Cedric Tille, economics professor at the Geneva Graduate Institute for International and Development Studies.

"The United States will realize that there is nothing to be gained by protracted tension with Switzerland but they can't let UBS off the hook too lightly," he said.

"They will probably get a hefty fine. The fact that relations are good is clearly in their favor."

The Swiss government has said it will be difficult to get parliament to approve a new double taxation treaty agreed with Washington last month unless the UBS case is settled.