First the good news: The Swiss bank UBS says its deposits should no longer interest the German taxman.
“All remaining German customers have shown proof of tax disclosures,” the banks said in a statement on request. That is, the bank is no longer hiding the assets of German tax dodgers.
It has been a long road towards achieving this goal. Sometimes it has seemed like the path zigzagged back and forth. A failed tax treaty with Germany at the end of 2012 would have made things easier for the Swiss banks. A flat-rate withholding tax on assets that had been untaxed so far would have offered the German customers an easier way out of the shadows.
But before the treaty floundered, the bank had already sensed possible business opportunities, according to an internal email from 2011 acquired by Handelsblatt. Under certain conditions, UBS was prepared to accept untaxed funds, even though the bank has officially refused to do so since 2009.
“No Germans who are dishonest in their tax affairs can open an account with us,” Markus Diethelm, Group General Counsel at UBS, told the finance committee of the German Bundestag at a public hearing of experts on the treaty at the end of September 2012. Sergio Ermotti, the head of UBS reinforced this at the end of July on Swiss Radio, saying: “Since 2009, we have already consolidated our business on a new foundation, in Germany, too.”
However, in the email from October 20, 2011, things read a bit differently. The message was sent about a month after the signing of the German-Swiss tax treaty. The subject line of the email reads: “Exemptions for Germany International with home visits and new openings.”
It was sent by Urs Zeltner, who was then the head of the German desk, to all team leaders of the bank’s advisers. Under the heading “Initiation of new client relationships,” it said: “In principle the directive remains, after which no new client relationships can be initiated if it is known that the relevant assets are not taxed.” And then: “The limitations will be lifted for Germany International for clients living in Germany, if the following conditions are met…”
The conditions were that newly enlisted illicit funds came from another Swiss bank and the customer signified that the “assets will be regularized.” That is, in the expectation of tax adjustments, UBS was sending its people out to quickly bring the untaxed assets of other banks to UBS, because only assets already in Switzerland before the end of 2010 benefited from the tax adjustments through the impending tax treaty. That was explicitly regulated in the agreement. It was meant to prevent customers from transferring their untaxed assets from all over the world to Switzerland, in order to make them legal with the German tax authorities.
According to sources close to UBS, there was only one customer who was acquired on the basis of the email.
UBS now explains the email thus: “UBS took all possible steps to clear up old legal cases from the past in Germany. Most recently, in July the proceedings at the German prosecutor’s office in Bochum regarding cross-border tax matters were resolved with an agreement. Additionally, all remaining German clients have brought their proof of tax disclosures.” According to sources close to UBS, there was only one customer who was acquired on the basis of the email.
UBS customer consultants told Handelsblatt that some were not entirely comfortable with the directive because they worried that through their assistance they could be make themselves guilty of abetting tax evasion. Tax lawyers say these concerns are unwarranted, however. What is crucial is that between the acceptance of funds and the regulation, no new and therefore false tax returns were turned in.
But the client acquisition policy in the wake of the withholding tax agreement was not without risks. When UBS sent the memo, the agreement had just been signed, but was not yet ratified. The agreement failed go into effect at the end of 2012 because of resistance of the center-left Social Democrats and Greens in the Bundesrat, the upper house of parliament representing Germany’s federal states.
After the deal’s collapse, UBS shifted and required customers to produce a tax statement, which according to the bank all have now presented. It was a twisting Swiss mountain path to get there.
Holger Alich ist Handelsblatt’s Switzerland correspondent. To contact the author: Alich@handelsblatt.com