Swiss Federal Administrative Court Rejects Behavior Pattern Request Which Just Suggest Fraud (4/11/12)

In A-737/2012: Decision of the Federal Administrative Court in re Credit Suisse client v. Swiss Federal Tax Administration (Swiss Federal Administrative Court 4/10/12), here, the Court rejects one of four categories of a U.S. request for administrative assistance under the U.S.-Swiss double tax treaty (referred to in the opinion as DTC USA-Switzerland 96).  Apparently all four categories were behavior pattern requests.  In the request, as a  predicate for the pattern behavior requests, the U.S. (i) "accused Credit Suisse (CS) that their employees actively assisted their clients, subject to US tax law, to conceal their income and assets from the US tax authority," and (ii) does not mention client names but just refers to the CS employee conduct.

The decision identifies only one of the four categories - Category 2.  "Category 2 includes accounts held by a domiciliary company with a U.S. beneficial owner with U.S. securities and with which Form W-9 is not associated." The Court decided that the category did not fall under the "tax fraud or the like" required under treaty as the Swiss interpret the treaty.  Rather, the category request as framed "includes persons, who at the utmost could be suspected of having committed tax evasion."  Tax evasion is  lesser conduct than tax fraud required by the Swiss interpretation of the treaty.  The Court further concludes that
the “search criteria” are not sufficiently tailored to enable the bank to identify with a high degree of probability those clients who are suspected of fraudulent conduct triggering administrative assistance and to simply leave the task of examining whether the transmitted data are suitable to confirm the suspicion of fraudulent conduct to the SFTA. Such a procedure is inconsistent with the principle of proportionality, which – as a general principle of administrative law – also applies to proceedings regarding administrative assistance. The Court reaffirms its case law that under the DTC USA-Switzerland 96 administrative assistance shall not be granted for presumed tax evasion, even if high amounts are at stake. It also confirms that the mere failure to declare a bank account may be qualified – at the utmost – as a tax evasion, which is not subject to administrative assistance.This result could be changed under the negotiated protocol now awaiting U.S. Senate approval.  But see my prior blog Swiss Continue Their Behavioral Patterns - Black is not White (4/9/12), here.

Klaus Wille and Giles Broom, Swiss Court Rejects Disclosure of Credit Suisse Client Data (Bloomberg 4/11/12), here.