The United States and Switzerland have agreed to increase the amount of tax information they share to help crack down on tax evasion.
The Treasury Department said Friday that the two nations concluded negotiations on an amended tax treaty. The discussions took place as U.S. legal authorities conduct investigations into allegations that giant Swiss bank UBS helped thousands of U.S. customers evade taxes.
Treasury Secretary Timothy Geithner said the Obama administration is committed to reducing offshore tax evasion.
"This treaty will increase our ability to enforce our tax law and will help bring an end to an era of offshore accounts and investments being used for tax evasion," Geithner said.
The protocol, which the two countries are expected to sign in the next few months, would revise the existing U.S.-Switzerland treaty to allow for a greater exchange of information as permitted by a model income tax convention adopted by the Paris-based Organization for Economic Co-operation and Development.
The negotiations over a strengthened tax treaty were taking place as U.S. authorities have been pressing UBS to hand over the names of 52,000 clients suspected of tax evasion.
A federal judge in Miami has scheduled hearings July 13-15 on the Internal Revenue Service's attempt to obtain the names of the 52,000 U.S. account holders. The Swiss government had claimed in court filings that the case might jeopardize the progress of the tax treaty talks and that turning over the names would violate Swiss law.
UBS already has paid $780 million in fines and restitution to settle allegations it helped U.S. customers evade taxes.
Swiss banks, which have a tradition of secrecy in financial matters, hold an estimated $2 trillion in foreign money, and financial services add about 12% to the country's economic output. According to the Boston Consulting Group, these holdings total one-fourth of the world's foreign-owned assets.
In a statement issued in Bern, the Swiss Economics Ministry said the agreement with the U.S. was reached after a final three days of negotiations. The ministry said Swiss businesses and local governments would be given the chance to comment on the proposed changes. Switzerland's Federal Council and Parliament will decide if the new agreement is allowed to take effect.
Since taking office in January, the Obama administration has been pushing initiatives to close loopholes that have allowed U.S. investors to evade taxes by using offshore tax havens.
At the Group of 20 leaders summit in London in April, President Obama backed efforts to boost adherence by all countries to international standards for exchange of tax information as part of a package of initiatives adopted to deal with the global economic crisis.
Switzerland and other countries considered bastions of banking secrecy have come under pressure from the U.S., Germany, France and Britain to crack down on their tax evaders.
Obama's budget proposals to Congress also include increased support for the IRS to reduce the amount of taxes lost through the illegal use of hidden accounts by wealthy investors.
Besides Switzerland, Treasury also recently concluded tax information exchange agreements with Gibraltar and Luxembourg.