no not that constitutional rock and hard place (aka torture violations) but this one; the 1996 tax treaty between the United States and the Swiss Federation and the Sixteenth Amendment to the United States Constitution. The tax treaty in question also illustrates the asymmetrical and unfair nature of the American banking system – a subject to be left for a different diary.
As some of you may already know, the U.S. Government is attempting to obtain from Swiss bank UBS the names of the bank's U.S. clients who are suspected of avoiding the paying of federal taxes on their incomes. Senator Carl Levin has held hearings on this matter and UBS Bank has paid a 780-million dollar fine after acknowledging their violations of United States law and perpetration of other fraudulent acts.
Across the jump, this diary will provide some thoughts on the critical question of the 1996 tax treaty and whether it was an actual amendment to the Constitution that could be in conflict Amendment XVI to the U.S. Constitution – a possible Constitutional rock and a hard place.
The impetus for writing this diary comes from the New York Times article, "Swiss Ask U.S. to Drop Suit Seeking Names of UBS Clients" published 2009 April 27 in its national paper edition. Below is a passage from the article.
The president of Switzerland, Hans-Rudolf Merz, has asked Timothy F. Geithner, the Treasury secretary, to drop a lawsuit led by the Justice Department seeking to force UBS to turn over the clients’ names, Daniel Haener, a Swiss government official in New York, said on Sunday.
Under Swiss bank secrecy laws, disclosing clients’ names is a criminal offense that can carry prison terms and large fines.
Switzerland instead is proposing to negotiate a new tax treaty with the United States that would make possible such disclosures in the future. However, the treaty would not apply to the clients in the continuing case. The current treaty, signed in 1996, does not require Switzerland to disclose clients’ names, and the United States is eager for a new treaty that does. Formal talks on a new treaty are scheduled to start on Tuesday.
For its part, the Justice Department is unlikely to scale back or drop its case against UBS, according to a senior person briefed on the matter. The agency "is not going to give in," this person said on Sunday.
Examination of this potential constitutional issue on taxes and the 1996 tax treaty between the U.S. and Switzerland continues with a citation of the U.S. Constitution’s income tax amendment and the tax treaty between the U.S. and the Swiss Confederation.
Via the Sixteenth Amendment to the U.S. Constitution (link is to a document in PDF medium), which consists of only one sentence, the American people gave to the U.S. government the Constitutional authority to tax income. Amendment XVI reads as follows:
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
The 1996 U.S.-Swiss tax treaty with its innocuous title , "CONVENTION BETWEEN THE UNITED STATES OF AMERICA AND THE SWISS CONFEDERATION FOR THE AVOIDANCE OF DOUBLE TAXATION WITH RESPECT TO TAXES ON INCOME, SIGNED AT WASHINGTON, OCTOBER 2, 1996, TOGETHER WITH A PROTOCOL TO THE CONVENTION," serves as the foundation for the present tax evasion cases that are under investigation.
The aforementioned treaty – supreme law of the land – because of its facilitation of tax evasion, exuberantly carried out by UBS, appears to be in conflict with the U.S. Constitution, Amendment XVI; the latter document prescribes the taxing of income regardless of source.
Senator Carl Levin (D-MI), in his opening statement at the Permanent Subcommittee on Investigations Hearing on Tax Haven Banks and U.S. Tax Compliance: Obtaining the Names of U.S. Clients with Swiss Accounts, highlights the nature of this sordid tax law business with UBS and others. A citation from that statement is offered below.
Each year, the United States loses an estimated $100 billion from U.S. taxpayers using offshore tax schemes to dodge their U.S. tax obligations. Those offshore shenanigans cheat honest U.S. taxpayers who pay their fair share and rob the U.S. Treasury of funds needed for the operations of our government.
This Subcommittee has dedicated significant effort to combating offshore tax abuse. We’ve exposed some of the facilitators – the lawyers, accountants, broker-dealers, company formation agents, trust administrators, and others that help clients dodge their U.S. tax obligations. We’ve exposed some of the schemes, such as mass marketed tax shelters peddled as investment strategies, networks of offshore trusts and corporations with hidden assets, phony offshore stock portfolios used to offset real income, and deceptive offshore transactions used to recast taxable income as allegedly tax free payments.
And Senator Levin specifically addresses the UBS case in the excerpt provided below.
First, let’s examine the UBS case. UBS is headquartered in Switzerland and is one of the largest banks in the world. During our July hearing, UBS admitted publicly for the first time that an estimated 19,000 U.S. clients had opened UBS accounts in Switzerland with nearly $18 billion in assets that were not disclosed to the U.S. Internal Revenue Service (IRS).
Since then, new evidence suggests that there may be far more than 19,000 U.S. clients with hidden accounts at that Swiss bank. A 2004 UBS internal report, which was introduced in court by the United States and we’ve marked as Hearing Exhibit 12, analyzes the U.S. client accounts opened in Switzerland. It states:
"The number of account relationships in WM&BB in Switzerland with US residents where the account holder has not provided a W-9 is approximately 52,000 (representing CHF 17 billion" – which means 17 billion Swiss francs" -- in assets)."
Senator Levin further describes violations of U.S. law by UBS.
Two weeks ago [middle of February 2009], DOJ confronted UBS itself by instituting criminal action charging the bank with defrauding the IRS. UBS decided not to dispute the facts, but to acknowledge that it had violated U.S. law and had defrauded the United States and the IRS. It entered into a deferred prosecution agreement with the United States which provides that, if UBS takes certain steps, the prosecution will be dismissed.
The UBS case highlights how the bank placed it compliance with Swiss banking laws above conforming with the laws of the United States. Traditionally, companies operating in foreign countries are expected to comply with the laws of those nations; but the Swiss banks believe they should be exempted from such traditions.
The U.S. courts recognized that UBS defied United States law and have ruled accordingly.
In a reportedly unprecedented court order, a federal judge in Miami has ordered Swiss-based UBS AG to reveal the names of U.S. residents who have been using secret accounts to avoid paying American income tax.
Consequently, we have UBS flaunting U.S. laws while operating a business enterprise in the United States. Additionally, a treaty to which the U.S. is a signatory seems to be in conflict with other aspects of the U.S. Constitution. Is it possible that this 1996 tax treaty between the United States and Swiss Fedearation illegally amended the United States Constitution?
What a hellish place we find our country in today?