International Tax Compliance Agreements and Swiss Bank Privacy Law: A Model Protecting a Principled History

By Ball, Taylor | The George Washington International Law Review, January 1, 2015 | Go to article overview

International Tax Compliance Agreements and Swiss Bank Privacy Law: A Model Protecting a Principled History


Ball, Taylor, The George Washington International Law Review


I. INTRODUCTION

Sensationalized by literature and films depicting grand monetary schemes and intricate white collar crime,2 a person with a Swiss bank account, in pop culture, is seen as a member of the financial elite, prone to hiding his riches in an air-tight vault of collusion and bank secrecy. While it may be easy to dismiss these cinematic depictions of white collar crime-intertwined with thrilling portrayals of covert spy operations,3 conspiracy theories,4 and maniacal plots for self enrichment5 as Hollywood hyperbole-the grand monetary stakes depicted are representative of the realities of international tax evasion. Swiss bank privacy law has historically made Switzerland a prime haven6 for tax evaders who seek to hide taxable income from their countries of origin.7 However, recently, Switzerland's scandalous reputation as a monetary sanctuary for tax evaders8 has been amplified tenfold.

In 2008, Bradley Birkenfeld, a senior banker of Union Bank of Switzerland (UBS)9 from 2001 to 2006, signed a U.S. court statement recounting how he had helped Igor Olenicoff, a California real-estate billionaire, evade $200 million in taxes on $7.26 billion in assets through the establishment of 'sham' offshore trusts.10 Following further investigation of UBS's tax compliance, or lack thereof, the U.S. struck a settlement deal with UBS for $780 million in fines, interest, and restitution.11 In exchange, the U.S. abstained from charging UBS with aiding thousands of wealthy Americans in evading U.S. taxes.12 This sensational scheme brought the issue of tax evasion, through foreign accounts and institutions, to the forefront of the discourse on international tax compliance.13

Transgressions like those committed by UBS14 pose a serious problem for countries around the world because they deprive governments of tax revenue, distort the distribution of tax burdens between taxpayers who can exploit tax havens and those who cannot, and hinder international cooperation between tax administrations. 15 In light of today's globalized economy, in which technology has eased the global transfer, accessibility, and concealability of assets, these issues motivate countries to enact laws and enter into international tax compliance agreements (compliance agreements) that discourage tax evasion via foreign accounts.16 This is especially true for historical tax havens like Switzerland, 17 which in recent years has held nearly thirty percent of global offshore private wealth.18 These compliance agreements generally require banks holding such accounts to report account information to the country that is the source19 of the income in question.20 Nondisclosure of such information typically results in a withholding tax21 on the income sourced from the origin country. 22 These measures serve to deter further tax evasion, raise revenue by collecting withheld amounts, and aid prosecution efforts by the country of origin through account information disclosed by foreign banks.23

While countries certainly have compelling interests in ensuring that all income sourced within their borders is appropriately reported and taxed as a matter of revenue and compliance (e.g. facilitation of domestic money flow, revenue, economic activity, and interstate goodwill), some of the mechanisms that countries employ in compliance agreements have caused particular tension with Swiss bank privacy law.24 Current compliance agreements with Switzerland25 employ a range of mechanisms that threaten to erode the culture of privacy protection in which these laws are enshrined.26 One such mechanism requires that an individual may only open a new account with a Swiss bank conditional upon the individual's consent to disclosure of account information.27 Consequently, even individuals who are completely compliant with their countries' domestic tax laws still may not avail themselves of the Swiss bank privacy law that has historically upheld account-holder protection and anonymity. …

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