Swiss court blocks US tax information request

A court in Switzerland has told the country’s tax authority not to hand over information about the bank account of a client of Julius Baer Group Ltd to the US. The nation’s largest federal court said the Internal Revenue Service (IRS) had made an “invalid” request for information.

In April of last year the IRS requested data on some of the bank’s customers who are US citizens, believing that employees had taken steps to help assist in tax evasion. The request was made under a 1996 double taxation agreement between the US and Switzerland.

However, the Swiss Federal Tax Administration “unlawfully granted the request for administrative assistance” submitted by the IRS concerning the disclosure of bank account data of clients of Julius Baer, the Federal Administrative Court in St. Gallen said in an e-mailed statement seen by Bloomberg.

The court said that while the IRS described alleged conduct of the bank’s employees, it failed to provide evidence of tax fraud, as is required under the agreement between the two nations.

It is the latest in a series of disputes over the sharing of tax information between Switzerland and the US as the IRS pursues those whom it believes to be evading tax.

In 2009, UBS avoided prosecution by paying a large fine and handing over data on over 4,700 accounts to the IRS.

Last year the Swiss parliament rejected a measure that would have created a legal framework for Swiss banks to resolve tax evasion cases with US authorities.

The bill had the support of the Swiss Banking Association, which regretted the decision by parliament. “A federal law would have been the best possibility for creating legal certainty so that the banks in Switzerland can make use of the US’ programme in order to draw a line under the past,” the body said after the vote in June.

However, the government is keen to prevent another bank being indicted after Wegelin & Co. pleaded guilty to conspiring to help conceal more than $1.2 billion from the IRS.  It also supports a Justice Department scheme announced in August of last year for Swiss banks not already under investigation to volunteer information on undeclared American accounts in exchange for non-prosecution agreements.