UBS: Just The Tip Of The Tax Haven Iceberg

After a three-year investigation that opened up “a deep diplomatic rift between the United States and Switzerland,” the Swiss bank UBS has finally succumbed to the IRS and is going to “hand over 4,450 accounts that contain a staggering $18bn”:

The 4,450 accounts soon to be in the possession of US investigators are expected to reveal the secretive world of international wealth management in which complicated webs of sham trusts and shell companies are created in tax havens to protect the assets of the super-rich. Switzerland shields nearly a third of the world’s $7tn of privately held wealth. Under US law, the IRS must be notified of offshore accounts holding more than $10,000.

For what it is, this is a good outcome. While the U.S. did not receive anywhere close to the 52,000 names that it requested from UBS earlier this year, as Bob Williams at TaxVox pointed out, the UBS probe has “really juiced the amnesty program,” under which tax evaders turn themselves in for smaller (though still hefty) penalties. Last month, for instance, the IRS reported that more than 400 evaders showed up in one week, “four times as many as in all of last year.” So the mere fact that the IRS wore down UBS is chasing other tax evaders out of the woodwork.

However, UBS is really the tip of the iceberg when it comes to tax evasion. The IRS estimates that about $5 trillion in assets is held in tax havens worldwide. In a report released last month, the Congressional Research Service said that the U.S. loses $40-$70 billion in annual revenue due to tax avoidance by individuals and another $10-$60 billion in corporate tax evasion. This squares with a report from the U.S. PIRG, which found that tax evasion shifts a $100 billion annual tax burden onto the individuals and corporations that do pay taxes in the U.S.


According to the Government Accountability Office, 83 of the 100 largest U.S. corporations have subsidiaries in nations judged by the US to be tax havens. In the Cayman Islands, for instance, “one mailing address alone houses 18,857 corporations.”

So this is a very widespread problem. To deal with it, the administration has proposed a handful of changes to the tax code — which are being vigorously opposed by the business lobby — and a doubling of the tax enforcement budget. These are good steps that would mitigate at least some of the evasion that is going on (although I’m willing to bet that armies of tax lawyers are already figuring out new ways around all of the changes). That UBS finally caved is definitely a victory, but there is far more that needs to be done.