Swiss, U.S. seen needing time to finish UBS tax deal

July 24, 2009

UBS executive Mark Branson ZURICH, July 24 (Reuters) – Talks between Switzerland and the United States to end a tax row targeting UBS could stretch beyond an Aug. 3 deadline to allow more time for a detailed settlement, a source familiar with the situation said on Friday.

U.S. tax authorities are seeking to force Swiss wealth management giant UBS to disclose the identity of an estimated 52,000 U.S. holders of secret Swiss accounts suspected of dodging taxes even though this breaches Swiss bank secrecy laws.

A trial against UBS was scheduled to start in Miami on July 13 but presiding judge Alan Gold agreed to delay it until Aug. 3 to allow time for a settlement.

A status call between Gold and lawyers from UBS and the U.S. Internal Revenue Service on July 29 could be an opportunity for an announcement of a delay. A meeting between Swiss Finance Minister Micheline Calmy-Rey and U.S. Secretary of State Hillary Clinton is also scheduled on July 31.

“I would not be surprised if during the July 29 call or at the weekend there may be another request for a delay,” a source familiar with the situation told Reuters. Many investors believe the judge will again postpone the trial as the tax talks are complex and working out a deal that without further weakening bank secrecy requires time.

“Nothing will happen on Wednesday. The parties will agree to postpone the deadline until September to reach an agreement,” a Swiss-based trader told Reuters.

Two Swiss-based sources familiar with the situation said a deal was unlikely to come before July 29.

UBS, the Swiss Justice Ministry and the Swiss Foreign Ministry declined to comment. The U.S. Department of Justice and the IRS did not have an immediate comment.

The Swiss bank, which has already said said it will report another quarterly loss on Aug. 4, needs to put the tax litigation behind it to focus on restructuring and regain client confidence. The bank was hit by the subprime shock and its brand has been damaged by the tax case.

The dispute is also key for the future of the global offshore banking industry.

Several financial sources have said the litigation has prompted many Swiss banks to start forcing their U.S. clients to become tax compliant or leave.

Many investors believe Switzerland and the United States will try to extend talks until late September, when an ongoing U.S. programme for voluntary tax disclosure ends.

“They will wait until the end of the U.S. amnesty in September and see how many UBS clients have turned themselves in and then come to an agreement,” said a second trader.

Lawyers have said hundreds of American clients holding UBS offshore accounts in Switzerland have turned themselves in to the IRS to take advantage of the amnesty.

Many of these are wealthy Jewish clients who inherited accounts from relatives who fled Nazi Europe or from survivors of the World War II Holocaust, tax lawyers have said.

The first UBS client to be charged of tax evasion in connection with the ongoing tax spat was a Florida accountant who worked in the yacht-building business and failed to disclose his secret account with the Swiss bank.

UBS Chairman Kaspar Villiger said earlier this month that the discussions with the United States are focusing on the data exchange rather than on any large fine.

UBS has already settled related tax fraud criminal charges when it agreed in February to pay $780 million and to exit its U.S. offshore banking business.

The settlement was seen as a serious blow to Swiss bank secrecy as the bank agreed to hand over around 250 names of American clients.

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