Don't Mess With Taxes

Switzerland is looking for a little quid pro quo when it comes to an international tax problem the country just can't seem to shake.

The Wall Street Journal reports that Swiss officials have asked the U.S. government to drop a legal case involving UBS in return for passing a new tax treaty between the two countries,.

UBS, Switzerland's largest bank, recently agreed to pay $780 million in penalties and restitution to avoid criminal prosecution in connection with the bank's accounts owned by around 50,000 wealthy Americans.

While Uncle Sam definitely wants UBS' money, federal prosecutors are still trying to get that list of American account holders it believes are using Swiss banking secrecy laws to avoid paying U.S. taxes.

UBS no longer offers offshore banking in the Uited States or financial services out of Switzerland for rich Americans.

Tax treaty benefits: The Treasury Department negotiates tax treaties with various foreign countries. Basically, the documents are designed to prevent the tax laws of various countries from having a "demonstrably harmful impact" on international trade and investment.

In the most general terms, tax treaties eliminate most forms of international double taxation. 

Under these accords, foreign residents in the U.S. are taxed at a reduced rate or, in certain situations, are exempt from some U.S. income taxes.

Similarly, U.S. residents or citizens living and working in a foreign nation covered by a tax treaty are taxed at a reduced rate or are exempt from certain foreign taxes,.

Most income tax treaties also contain a clause that prevents a U.S. citizen or resident from using tax treaty provisions to avoid taxation of U.S. source income.

Read the fine print, Tim: As for the proposal to ease up on UBS for a quick tax treaty resolution, a Swiss official told the Journal that Treasury Secretary Timothy Geithner seemed "understanding of the Swiss position" and that Geithner promised to "look into it."

Let's just hope that Geithner gets better terms on this deal than Treasury got in its bailout arrangements with the domestic financial industry.

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