A Swiss court said on Friday that it had upheld an appeal by a US taxpayer in a ruling that could jeopardize a landmark deal between Switzerland and the US settling tax fraud charges against Swiss bank UBS.
In a state-brokered settlement in the US last year, Switzerland’s banking flagship UBS warded off a bruising US government lawsuit by agreeing to hand over secret details about 4,450 clients and US taxpayers.
However, the Swiss Federal Administrative Tribunal effectively halted that handover by ruling in favor of one of the clients who had lodged an appeal in a test case.
“The Federal Administrative Tribunal has upheld the appeal by a US taxpayer against the decision by the federal tax authority to transmit their banking data to US tax authorities [the Internal Revenue Service] under a procedure for mutual assistance relative to UBS,” the tribunal said in a statement.
It described the decision as a “pilot ruling” and denied leave for appeal to Switzerland’s supreme court.
The tribunal ruled that last year’s agreement between the US and Swiss governments could not take precedence over the rules set out in the existing Swiss-US dual taxation agreement.
The out-of-court settlement last August ended months of diplomatically sensitive negotiations over a massive US probe of taxpayers with secret accounts at the world’s largest wealth manager, allowing UBS to avoid a costly lawsuit.
Swiss legislation requires UBS to pass the client details to the Swiss government, which in turn would decide if they should be transmitted to the US.
The Swiss government said in a statement that it would decide after a Cabinet meeting on Wednesday how to ensure that last year’s settlement could be applied following the court ruling.
It said the settlement had been aimed at solving the dispute within the bounds of the law, thereby “allowing the threat of a conflict” between Swiss and US legal regimes “to be lifted.”
The US taxpayer was accused of omitting to file a W-9 declaration form with the IRS, taking advantage of Swiss banking secrecy.
However that omission could not be considered to be fraudulent and the offence therefore did not warrant the handover of their Swiss banking details to the US, the Federal Administrative Tribunal said.
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