Wednesday, May 20, 2009

UBS Tax Case Could Backfire On U.S.

Some experts feel the high profile case of the US vs. UBS could hurt its global economic standing, backfiring their original plan. Check out the following article from discussing the issue.

U.S. banks and the U.S. economy could suffer as a result of the high-profile tax evasion case pitting the Internal Revenue Service against UBS AG, supporters of the Swiss bank said in a federal court filing in Miami.

In a joint filing on Friday, five business and banking groups urged Federal District Court Judge Alan Gold to reject IRS demands that UBS (UBSN.VX) (UBS.N) reveal the names of 52,000 Americans suspected of using the bank to hide nearly $15 billion in assets and evade U.S. taxes.

Echoing a similar filing last month by the Swiss government, the petitioners said any exchange of confidential banking information should be handled through existing legal treaties rather than the courts.

The petitioners were led by the Swiss Bankers Association and Economiesuisse -- an umbrella group representing powerful Swiss industry, trade and economic associations.

They also argued that the IRS was seeking to embark on a "fishing expedition" and had no international legal standing to use a tool known as a John Doe summons to investigate suspected tax fraud by individuals whose identities and possible legal transgressions were unknown.

The IRS action violates both Swiss sovereignty and the framework of international law, the court filing says.

"Disregarding established treaty protocols and imposing conflicting obligations upon multinational enterprises, as the IRS urges, also would encourage courts in other jurisdictions to ignore established treaty protocol in taking similar measures against U.S. banks, enforcing subpoenas and similar broad-based information demands served on their overseas offices," it warned.

"Such a result not only would erode the primacy of U.S. law and treaty protocol, but could encourage non-resident aliens and foreign entities to withdraw significant deposits from U.S. based institutions to the detriment of the U.S. economy," it added.

"Further, imposing obligations on foreign businesses to violate their home country laws would discourage such businesses from entering the U.S. market."

The court filing offered no estimate of what it said could be "significant capital outflows" from U.S. financial centers, as one unintended consequence of the crackdown on UBS.

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