It looks like Switzerland is joining the rest of the world when it comes to tax evasion.
Switzerland, unlike the United States and many other countries, differentiates between tax fraud and tax evasion. While fraud is illegal, evasion isn't a crime.
That's produced some problems of late.Those secretive Swiss have seen the financial services giant UBS come under global criticism for its secret accounts opened by individuals solely for the alleged purpose of evading their own countries' taxes.
On the U.S. front, the Swiss company is facing lawsuits from both U.S. tax investigators wanting open books and American clients arguing their promised privacy continue to be protected.
Now however, Switzerland has decided to, as the New York Times phrases it, "move toward a more rigid definition of tax evasion and help global authorities pursue tax cheats."
What a difference a definition makes: Switzerland, unlike the United States and many other countries, distinguishes between tax fraud and tax evasion, and does not consider tax evasion to be a crime.
Now, however, Switzerland will cooperate with other nations' authorities who are investigating tax evasion and, under certain circumstances, will hand over data on accounts at banks based within its borders.
More importantly, the tax haven countries' decision to adopt the Organization for Economic Cooperation and Development definition of tax evasion will get them off the OECD's blacklist. The country was placed last week on the group's list of "uncooperative tax havens."
If Switzerland remained on the blacklist, said Swiss finance minister Hans-Rudolf Merz at a press conference announcing the policy change, it would hurt not only the banking sector, but also the country's whole economy.
Secret but legal: If you have a secret Swiss bank account but aren't using it to illegally hide income from the IRS, don't worry.
"The privacy of foreign clients not under suspicion will continue to be protected by Swiss bank-client confidentiality," the Swiss Bankers Association said on Friday. "An automatic exchange of information is excluded."
It is also commonly-accepted international practice for re-negotiated double taxation treaties not to be backdated in their application, notes the Swiss banking group's statement. This is of great importance to banks in their role as guardians of their clients' financial interests.
Court implications: So does the banking group's official position indicate that it still intends to honor client secrecy with regard to accounts in question before Switzerland announced its change of policy?
If so, what will that mean to UBS? It is facing a Department of Justice lawsuit seeking information on the accounts of suspected U.S. tax evaders, as well as a subsequent legal action initiated by those clients to retain the pledge of bank secrecy.
Any international tax lawyers or experts out there, please let us know your take on the situation.
Financial film note: One of my my favorite films, The Spanish Prisoner, employs a secret Swiss bank account as a plot device. Check it out, not only for the global financial tidbit, but also to see Steve Martin in a different kind of role.
And the music in the movie is pretty darn good, too.