Switzerland asks U.S. court to halt UBS tax case

People walk past the UBS building on Park Avenue in New York February 19, 2009.

MIAMI (Reuters) - Switzerland urged a U.S. court on Thursday to reject demands by U.S. tax authorities for information about U.S. clients of UBS AG, saying disclosure would violate its sovereignty and international law.

The Swiss government's petition came in a federal court filing in Miami, where the U.S. Internal Revenue Service 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 of assets and evade U.S. taxes.

"Switzerland's laws prohibit the release of confidential information to foreign governments when the request has not been made through authorized 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," it said.

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

UBS acknowledged in February that it helped U.S. 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.

"FISHING EXPEDITION"

"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 U.S. 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" type request that was clearly 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.

The IRS has pushed ahead with its demand for enforcement at a time when political leaders in the United States and elsewhere, and even Pope Benedict, have called for a crackdown on secretive tax havens and offshore financial centers.

Switzerland, which is trying to defend its jealousy guarded tradition of bank secrecy, asked the United States last weekend to drop the case against UBS in return for a new tax accord with Washington.

Negotiations on the new agreement began on Tuesday. But in its statement to the court, the Swiss government said it had already warned the U.S. State Department that the threatened enforcement of the summons against UBS could scuttle the negotiations.

"The court should refrain from issuing an order that would interfere with those negotiations and the more general intergovernmental relations between Switzerland and the United States," the Swiss government told the court.

(Additional reporting by Pascal Fletcher and Jim Loney; Editing by Bernard Orr)