March 27, 2009 / 4:10 PM / in 10 years

Others may follow U.S. lead on deal for tax cheats

ZURICH (Reuters) - More governments could copy a U.S. program to offer non-punitive tax deals to people hiding money in foreign bank accounts, a move likely to be welcomed by Switzerland and other centers if it eases scrutiny of their secretive offshore banking operations.

A traffic sign is pictured in front of Liechtenstein's castle in Vaduz March 12, 2009. REUTERS/Christian Hartmann

Washington is leading a global fight against tax evasion and is pressuring top Swiss bank UBS UBSN.VX(UBS.N) to disclose thousands of U.S. clients’ names as part of a tax fraud probe.

On Thursday, it promised lower fines and no criminal charges to those who voluntary approach it over the next six months.

Lawyers believe that tax amnesties and voluntary tax disclosure plans can be an effective way to bring onshore billions of dollar of undeclared cash and inject it into economies at a time when the money is most needed.

“The U.S. offer is a very sensible move and one I would hope others would look at,” said Jonathan Ivinson, Partner and Head of Tax at International law firm Hogan & Hartson.

“Often the money has been there for years. People are trapped. Giving them an opportunity to declare seems to be more effective that forcing Switzerland to disclose the names.”

Since offshore money is normally protected by strict bank secrecy laws, there is no official data on total wealth hidden from the taxman. The Boston Consulting Group estimates that wealth held abroad, not all of which is undeclared, could amount to $7 trillion, of which nearly one third is in Switzerland.

Under pressure from the G20 group of industrialized and developing nations, Switzerland and other main offshore centers agreed to relax their bank secrecy rules earlier this month and help foreign governments chase tax evaders.

Switzerland and Liechtenstein, in particular, said on this occasion they want to negotiate a solution that would solve once and for all the problem of undeclared foreign assets and take the pressure off their embattled wealth management industry.

“The government has always stressed that it wants some sort of guarantee for a transitory regime for foreign bank clients with a Swiss account,” Swiss finance ministry spokesman Roland Meier said. “But the exact details must be negotiated in each individual bilateral tax treaty.

The tiny principality of Liechtenstein, a tax haven wedged between Austria and Switzerland, has suggested it would offer more tax cooperation if countries were to help its bank clients come clean. It will discuss this issue with Britain when it starts bilateral tax talks on April 1.


Angel Gurria, Secretary General of the Organization for Economic Cooperation and Development (OECD) that has long campaigned against tax evasion, said on Thursday other governments may consider tax deals or tax amnesties to recover untaxed cash in time of crisis.

Italy, which carried out a tax amnesty in 2002, is so far the only European country to have mentioned the issue, although no concrete plans are under way.

Gurria said that while not everyone agrees with tax amnesties, governments may take a pragmatic approach.

“I don’t know a single finance minister who does not think that (a tax amnesty) is a terrible thing to do, but who also understands that perhaps it is the best thing or the only thing to do,” Gurria also said.

Hefty penalties have prevented many wealthy westerners, some of whom inherited secret offshore bank accounts from relatives, to come clean with tax authorities.

Account holders face jail in most countries if found guilty of tax evasion and the United States can impose fines that are equivalent to between 50 and 70 percent of the accounts’ value for all the years taxes were not paid.

But campaigners against tax evasion argue that tax cheats are criminals who should be punished and point to the fact that several past tax amnesties, for example in Latin American countries or Germany, have not deterred future tax evasion.

“(The U.S. move) sets a bad example. Tax amnesties have not worked in the past,” John Christensen, Director at the Tax Justice Network, who called for a coordinated global approach and effective punitive measures against the banks.

Italy recovered more than 50 billions of euros with its 2002 tax amnesty. Germany, which also had a tax amnesty, was less successful as it taxed the recovered assets between 25 and 35 percent. France, which has never offered tax deals, is already under pressure for having introduced tax cuts for the very rich.

Yet, Swiss tax lawyers say they were advising clients to start disclosing their secret accounts in the face of weakening bank secrecy laws and in the hope governments could be able to negotiate some lenient treatment for bank accounts holders.

“It is a fantastic moment to induce people who are not in order in their country to get back into the country,” said Pierre Mirabaud, chairman of the Swiss Bankers’ Association and senior partner at Geneva-based private bank Mirabaud.

Additional reporting by Tamora Vidallet in Paris, Jonathan Lynn in Geneva; Editing by David Cowell

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