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Swiss minister questions tax evasion rule

* Minister questions tax evasion/tax fraud distinction

* Time to bring Switzerland in line with other countries

* Another blow to banking secrecy

GENEVA, Feb 21 (Reuters) - Switzerland’s justice minister questioned on Sunday whether tax evasion should continue to be treated as a misdemeanour rather than a crime, in another blow to the country’s cherished banking secrecy.

Switzerland has already abandoned the distinction between tax evasion -- failing to declare your income or wealth to the taxman -- and tax fraud -- deliberately misleading the revenue -- for foreigners investing money in the country.

Last year Switzerland was forced to help the U.S. authorities investigate tax evasion by thousands of Americans investing in Switzerland to resolve a case brought by the U.S. authorities against UBS UBSN.VX.

That lawsuit threatened to bring down the giant Swiss bank with disastrous results for the Swiss economy.

Switzerland has also been forced to renegotiate double-taxation agreements with other countries that recognise tax evasion as a crime not protected by banking secrecy, under sustained pressure from Germany and other European states.

Swiss tax authorities should be treated in the same way as foreign ones, Justice Minister Eveline Widmer-Schlumpf said in an interview with the weekly NZZ am Sonntag.

“The question arises whether in the long term we should abolish the distinction between tax fraud and serious cases of tax evasion domestically as well,” she was quoted as saying.

The independent-minded Swiss, with a centuries-old suspicion of government, believe that an individual’s financial affairs are his or her own business.

While consciously lying to the revenue authorities, for instance forging documents about income, is a crime as elsewhere, simply omitting to report earnings is currently an administrative offence punishable by a fine.

Because tax evasion is not a crime in Switzerland, requests from other governments for help with investigations into the tax affairs of their own citizens investing in Switzerland were politely turned down for years, even if tax evasion was a crime in the investor’s own country.

The Swiss authorities would only help if they were shown evidence that a crime under Swiss law -- a deliberate fraud -- had been committed.

Long-standing laws making it a crime in Switzerland to provide details of an individual’s bank accounts bolstered this system.

The financial crisis, which has drained the coffers of many rich countries, has encouraged them to step up efforts to collect tax on wealth concealed abroad, with accounts in Switzerland a prime target.

Widmer-Schlumpf said the Swiss authorities would not help foreign tax authorities with investigations into tax cases that were based on stolen bank data. Germany said this month it would pay 2.5 million euros for stolen Swiss bank data with details of tax evaders. [ID:nLDE61E10D]

The tax evasion proposal is likely to be highly controversial in Switzerland.

But Widmer-Schlumpf said it was unfair that some people could hide large sums for many years and be treated much more lightly than others concealing small sums but falsifying documents to do so.

It would still not be a crime to evade taxes if you simply forgot to declare income or wealth, rather than repeatedly concealing it, she said. (Reporting by Jonathan Lynn; Editing by Jon Boyle)