Ethics and governance in the European Financial centers

In a Judgment of the Court of Justice dated 11 June 2009 (Joined Cases C-155/08 and C-157/08 :  X and E.H.A. Passenheim-van Schoot v Staatssecretaris van Financiën) it is stated that an extended recovery period where taxable assets which have been concealed from the tax authorities are held in another Member State is in accordance with community law.

In so far as the tax authorities have no evidence of the existence of such assets, an extended recovery period does not go beyond what is necessary to guarantee the effectiveness of fiscal supervision and to prevent tax evasion.

The Court distinguishes two situations:

The first situation is where items which are taxable in one Member State and located in another Member State have been concealed from the tax authorities of the first Member State and the latter do not have any evidence of the existence of those items which would enable an investigation to be initiated. In that situation, the first Member State is unable to request the competent authorities of the other Member State to communicate to it the information necessary to establish correctly the amount of tax due.

In those circumstances, making taxable items which have been concealed from the tax authorities subject to an extended recovery period of 12 years does not go beyond what is necessary to guarantee the effectiveness of fiscal supervision and to prevent tax evasion.

Nor does Community law preclude, in this situation, the fine imposed for concealment of the foreign assets and income from being calculated as a proportion of the amount to be recovered and over that longer period.

The second situation is where the tax authorities of a Member State have evidence concerning taxable items located in another Member State which enables an investigation to be initiated. In that situation, the application by the first Member State of an extended recovery period which is not specifically intended to permit the tax authorities of that Member State to have effective recourse to mechanisms of mutual assistance between Member States and which commences once the taxable items concerned are located in another Member State cannot be justified.

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AP has reported that the US Justice Department stated in a court filing yesterday that Swiss bank UBS AG "systematically and deliberately" violated U.S. law by dispatching private bankers to recruit wealthy Americans interested in evading taxes and must be forced to reveal the identities of 52,000 of those clients.

The signature of an agreement based an the OECD tax model between Switzerland and the USA a couple of days ago did not hushed up the issue.