US in court over UBS Singapore client’s records

A Swiss bank in Singapore is resisting a request by the US Internal Revenue Service to hand over its records of an account held there by an American citizen, in what some observers see as a potentially significant development at a time when countries around the world are moving towards the automatic exchange of tax-relevant information.

The IRS has gone to a US District Court in Miami in an effort to force Switzerland’s UBS Group to release to it the account details of a naturalised American citizen, Ching-Ye Hsiaw, who now lives in China, according to media reports in Singapore and the US.

Last week, a federal judge instructed UBS “to show up in court on March 31 to explain why it has refused to supply the account records”, according to a Bloomberg report on the matter. Bloomberg quotes an unnamed source as saying Singapore’s response is that it will lift its banking confidentiality “when foreign authorities ask it to do so and when the law is used to shield criminal activities”.

The report goes on to quote Jeff Neiman, a former federal prosecutor, as saying the matter was “setting up a showdown of Singapore secrecy versus the US need to enforce its tax laws”.

The case is attracting attention because it suggests the opening of a new front in the US’s efforts to go after offshore tax evasion by its citizens who, by virtue of America’s ‘citizenship-based’ approach to tax, are obliged to file tax returns and potentially pay tax even if they no longer live in the US and have no intention of ever returning.

Key details of the case may be gleaned from the declaration of an IRS agent, James Oertel, including the fact that Hsiaw reportedly first opened an account with UBS through its San Francisco representative office in 1994. After moving it briefly to Switzerland, he then moved it to Singapore in April, 2002, agent Oertel recounts.

One aspect of the Hsiaw case that isn’t explained is why the US authorities are so determined to go after Hsiaw’s account details, given that they already would have had a glimpse of them as recently as 2009, according to Bloomberg. This is because his details would have been included in an earlier US case against UBS, also filed in Miami, which was settled in 2009 after the bank admitting it had encouraged tax evasion, and agreed to pay US$780m, Bloomberg said.

Global tensions seen to mount

As reported here yesterday,  experts are seeing growing tensions in the international financial marketplace, as the date for the launch of an OECD scheme to require all countries to automatically exchange tax-relevant financial information approaches.

In particular, many see a potential showdown looming over the US’s decision not to participate in the OECD’s Common Reporting Standard scheme, which more than 90 jurisdictions have agreed to abide by, beginning next year.

The US has said it doesn’t see the need for it to be a party to the CRS, because it already gets the information it needs through the Foreign Account Tax Compliance Act, which has come into force over the last three years, and requires all non-US financial institutions to report to the IRS about any accounts they have that belong to Americans. But many observers say that the CRS can’t work without the participation of the world’s largest financial services player.

Meanwhile, the fact that the US has vowed to remain outside the CRS club is already causing it to emerge “as a leading tax and secrecy haven for rich foreigners”, as noted here in January, as “everyone from London lawyers to Swiss trust companies” is said to be moving money to the US.

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