Offshore tax evasion is one of the major issues that has faced Internal Revenue Service (IRS) in the United States. This issue has had considerable negative impacts on economic growth and development of the United States with respect to taxation. The existence of multiple tax havens in Switzerland has facilitated massive tax evasion by the super-rich and companies. One of the most commonly used measures for tax avoidance or evasion is corporate profit-shifting. Individuals and companies continue to take advantage of tax havens i.e. countries that enable foreign individuals and companies a minimum tax liability, to engage in tax avoidance. Some of the major tax evasion incidents or cases include the UBS offshore tax evasion and Credit Suisse offshore tax evasion. This paper seeks to examine the history or development of Swiss bank cases and their impact on Swiss bank secrecy laws. This discussion also includes an evaluation of efforts undertaken by IRS to deal with offshore tax evasion through John Doe Summons’s and ODVI initiative as well as new FACTA rules.
Scope of Tax Evasion
As previously indicated, offshore tax evasion is a major issue in the United States, which has been facilitated by the existence and development of tax havens, particularly in Switzerland. While it is not illegal to establish offshore companies, individuals or businesses in the United States are required to report their global income. However, some businesses have capitalized on this in recent years by using their offshore intermediaries to protect them through hiding wealth or engaging in suspicious transactions in the tax havens (Mauldin & Saunders, 2016). For instance, the Panama Papers Scandal highlighted the extent with which individuals and businesses capitalize on the establishment of offshore companies in tax havens to engage in tax avoidance. The scandal implicated 140 public figures, celebrities, and executives worldwide to overseas assets in offshore tax havens. Some of these overseas assets are situated in different countries...
Credit Suisse recently became the first financial organization to plead guilty for conspiring to facilitate tax evasion (Grossman, Letzing & Barrett, 2014). Moreover, a whistleblower was recently awarded $104 million for revealing tax evasion tactics employed by UBS and its wealthy clients (Saunders & Sidel, 2012). The widespread scope of tax evasion is also evident in the development of fancy storage facilities in airports as tax havens. Super-rich individuals are increasingly spending money on expensive stuff and freeports like in Findel airport in Luxembourg to engage in tax evasion (The Economist, 2013).
History/Development of Swiss Bank Cases
Switzerland has maintained a long history and tradition of bank secrecy that is based on two major pillars. First, the country has maintained bank secrecy as part of measures to foster the normal contractual obligation of confidentiality between banks and their clients. Based on this principle, Switzerland has established laws that provide criminal penalties to forbid banks from disclosing the existence of an account or providing account information to third-parties without the consent of the account holder/owner (Emmenegger, 2014). Secondly, bank secrecy is maintained in Switzerland as part of measures to control or regulate individuals or entities that can access a customer’s account information. However, the country’s regulations allow its authorities to access and probably share all account information under certain circumstances and in line with international agreements such as when dealing with money laundering cases.
Even though bank secrecy has been established and maintained in Switzerland for good reasons, foreign individuals and businesses have continued to capitalize on this to engage in tax avoidance. Swiss banks and other financial institutions have capitalized on pillars of bank secrecy to collude with foreign individuals and…
