U.S. asks court for more time to reach tax deal with UBS

By Reuters Staff
August 7, 2009

UBS/TAX MIAMI, Aug 7 (Reuters) – The U.S. government, citing difficulties in talks to hammer out a final settlement of its tax-evasion dispute Swiss bank UBS AG, asked a U.S. judge on Friday to delay a trial in the case set to begin on Monday.

“The parties are still talking,” Stuart Gibson, an attorney for the U.S. Justice Department’s tax division, before a court session on Friday at which the United States asked for the delay.

The two sides had been widely expected to announce a final settlement. Washington is seeking the names of thousands of wealthy American clients of UBS suspected of using offshore accounts at the bank to conceal assets and evade U.S. taxes.

Gibson told U.S. judge Alan Gold in a teleconference last Friday that the two sides had reached an “agreement in principle” and hoped to resolve remaining issues in the coming week.

It was not immediately clear what obstacles remained to a final deal. The case, which has threatened to harm relations between the United States and Switzerland.

UBS shares dropped briefly after the news of the delay but then rebounded and were up 0.6 percent at 15.98 euros in Switzerland and up 0.8 percent at $14.89 in New York.

Trial of the government lawsuit against UBS was originally set to begin on July 13. Gold agreed to delay it until Aug. 3 to allow time for a settlement, and then agreed to delay it again until Aug. 10 following the agreement in principle to end the dispute.

Talks with U.S. authorities are led by Swiss diplomats.

The case has rippled across the global offshore banking industry because it marks the biggest legal challenge ever to Switzerland’s famed bank secrecy.

The case against Switzerland’s largest bank gained notoriety in June 2008 when a former UBS banker admitted he once smuggled a client’s diamonds into the United States in a toothpaste tube to avoid detection by U.S. authorities.

In February 2009, UBS agreed to pay $780 million to settle criminal charges it was facing under a separate but parallel tax dispute with the U.S. government. It agreed to hand over data related to about 250 U.S. clients who held secret accounts and promised to close its offshore business to U.S. clients.

Officials said the Swiss government rolled back its regulations to the limit to transfer the data without formally violating its laws, but tax lawyers said the case was a blow to bank secrecy.

Swiss banking rules have been under pressure for years and are gradually eroding. Another blow were concessions the Swiss government made in March to abandon the distinction between tax fraud and tax evasion when dealing with foreign authorities.

(Reporting by Tom Brown, additional reporting by Lisa Jucca in Zurich; Editing by Jane Sutton and John Wallace)

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