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Swiss Tax: Swiss Lower House Rejects UBS Pact

Vote Jeopardizes a Deal to Turn Over Names of Suspected Tax Cheats to the U.S.; Bonus Ire
A deal to resolve the U.S. government's tax battle with UBS AG was jeopardized Tuesday when Switzerland's lower house rejected a bill that would have allowed the government to provide the U.S. with the names of UBS account holders allegedly dodging American taxes.

Last August, the U.S. and Switzerland reached a deal to settle a case involving hidden offshore accounts at the banking giant. The U.S. accused UBS of having helped thousands of Americans avoid paying taxes at home by setting up the offshore accounts. UBS admitted wrongdoing and agreed to hand over the names of 4,450 American account holders to the U.S. Internal Revenue Service by August.

However, in January, a Swiss court ruled that the deal broke domestic laws. In April, the government presented a special bill that would have laid the legal groundwork to enable it to hand over the names. Last week, the Swiss Senate approved the bill.

The U.S. Internal Revenue Service said Tuesday it is prepared to reopen the case against UBS should the Swiss miss the August deadline. "We expect that the Swiss government will continue to honor the terms of the agreement," said a statement from IRS spokesman Frank Keith. "We stand ready to pursue all legal options available to us should the Swiss fail to provide the required information."

The lower house's rejection is a defeat for the Swiss government, which had hoped to put the dispute with the U.S. behind it. If an agreement isn't reached before the Swiss parliament adjourns later this month, the deal between the U.S. and UBS could be voided. It also complicates UBS's efforts to rehabilitate its image and revamp its wealth-management unit, which has seen an exodus of clients in part due to the U.S. tax squabble.

The U.S. Department of Justice had no comment on the development. UBS said in a statement that it has taken note of the vote, without elaborating.

The bill was rejected 104 to 76, with 16 abstentions. It has been the subject of a heated debate in Switzerland for months and became caught up in a separate controversy regarding bankers' bonuses, which have roused public ire over the last two years. Left-leaning parliamentarians opposed the UBS bill because they wanted to attach an amendment establishing a special tax on bankers' bonuses. Conservative parties oppose such an amendment.

A cameraman films the results of the vote of the Swiss House of Representatives against the controversial settlement deal on sharing banking data with the U.S.

Following the rejection, Swiss parliamentarians will now seek a compromise that, if successful, would lead to another round of voting on the bill in both chambers. However, there is considerable time pressure. The current parliamentary session ends at the end of next week, while the U.S.-Swiss deal last year requires that the Swiss hand over the names to American officials by August.

Swiss Foreign Minister Micheline Calmy-Rey expressed hope that an agreement could still be reached. "It's not over," she said.

In an interview, Ms. Calmy-Rey declined to speculate as to what the Swiss government might do if the bill fails. "I hope it will find a majority," she said. The government has pushed hard for the deal, with Economy Minister Doris Leuthard recently saying, "There is no plan B" in case of rejection of the bill.

The U.S. has said it won't extend the August deadline. If Switzerland fails to hand over the names, the U.S., which alleged that UBS helped Americans hide about $20 billion, could launch a new tax case against the bank.

Carl Levin, a Democratic senator from Michigan who has led several committee hearings on the UBS case, called on U.S. authorities to reopen the case immediately. "The United States should reject any further attempts by the Swiss to delay the UBS case," he said in a statement. "It is time to move forward with the summons in court and force UBS to provide the names."

Even if parliament approves the bill, there is still the risk that a political party or a civic group will push to subject it to a popular referendum. That would likely mean a failure by Switzerland to meet the August deadline because of the months it takes to hold a signature drive to launch a referendum.

UBS shares fell 2.2% in Zurich on Tuesday.

The tax case has been particularly damaging to the bank's wealth-management business. The aggressive action by the U.S. opened the door to pressure from Switzerland's European neighbors, which have urged the nation to loosen its bank-secrecy laws and give up its status as a tax haven. Since the start of 2008, UBS has lost about 1,500 private bankers and its wealth-management unit has seen net outflows of 231 billion Swiss francs ($198.5 billion).

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