The major tax deal between the U.S. and Switzerland has failed. The Switzerland House of Representatives rejected the bill that would have allowed Swiss banks, suspected of helping U.S. taxpayers evade taxes in their country, avoid criminal prosecution by the U.S.
The Swiss government warned that the failure of the bill might lead to the prosecution of the banks accused of malpractices. The government may try to save its banks from criminal prosecution by using executive orders, allowing them to share financial data of U.S. taxpayers. The banks will try to seek an out-of-court settlement with the U.S., even if the government is not able to reach a deal with the U.S. It is speculated that the deal could come close to $10 billion.
The U.S. and Switzerland will still need to discuss future tax compliance under the Foreign Account Tax Compliance Act (FATCA). The U.S. has been making deals with many countries to reduce tax evasion. As Switzerland is a well-known tax haven, the U.S. will require the country to report the financial transactions of U.S. taxpayers to improve U.S. tax compliance.
U.S. authorities are investigating more than 12 banks officially, including Julius Baer, Credit Suisse, HSBC’s Swiss branch, Basler Kantonalbank and Zuercher Kantonalbank. Wegelin & Co, the oldest bank in Switzerland, admitted that it helped Americans evade taxes through secret bank accounts. The bank paid a $58 million penalty.
The U.S. has yet to respond to the new twist that might force them to take aggressive actions against the Swiss banks. Even after the collapse of the bill, it might not be the end of the road, as alternative measures might be taken by the Swiss government to protect its banks. If the U.S. pursues the cases against the banks suspected of assisting in tax evasion, many expect some will be forced to shut down.