Swiss Adopt Banking Protocol Allowing U.S. to Request Information

On March 5, the Swiss parliament adopted an amended ratification of the 2009 Protocol to the Swiss-US Income Tax Treaty. The protocol was signed by United States and Swiss tax officials on September 23, 2009 to allow a greater tax information exchange between the countries in the aftermath of the UBS tax evasion controversy and the IRS’s efforts to obtain information about U.S. taxpayers from the Swiss banks. The primary goal of the protocol is to incorporate current OECD information exchange standards into the Swiss-U.S. treaty.

Under the amended resolution, the United States can request information based upon actions that indicate possible tax evasion without knowing the identity of the taxpayer, although the Swiss government has indicated that “fishing expeditions” will not be allowed. Some commentators have speculated that the Offshore Voluntary Disclosure Program (OVDP) will help the IRS obtain information under the standards set forth in the protocol. As more taxpayers come forward under the OVDP, the IRS will be able to identify Swiss banks that have engaged or helped U.S. taxpayers evade taxes. This in turn will allow the U.S. to request information regarding accounts held by U.S. taxpayers at specific Swiss banks, which could help the IRS identify additional non-compliant U.S. taxpayers. For more information on OVDP, please review our prior discussions.

The Senate has to ratify the protocol before it takes effect. Consideration of the protocol by the Senate has been delayed by Sen. Rand Paul, who placed a hold on this protocol and treaties with two other European countries.