[Congressional Record (Bound Edition), Volume 160 (2014), Part 7]
[Senate]
[Pages 10009-10011]
[From the U.S. Government Publishing Office, www.gpo.gov]




                              TAX TREATIES

  Mr. LEVIN. Madam President, the unanimous consent proposal that I 
just made a few moments ago that was objected to by the Senator from 
Kentucky related to the need of the Senate to take up the ratification 
of five tax treaties that were approved by the Committee on Foreign 
Relations on a unanimous voice vote, including a revised U.S.-
Switzerland tax treaty that was amended in 2009, with a protocol 
enabling the United States to obtain more information--more information 
from Switzerland about U.S. taxpayers with hidden Swiss bank accounts.
  We have been trying to close down these offshore tax havens and the 
way in which they aid and abet American tax avoidance for years. Here 
we have a tax treaty which will help us get more information about the 
American taxpayers who are trying to avoid paying their taxes to Uncle 
Sam, and we get an objection to the ratification, even to taking up the 
ratification of this treaty.
  American taxpayers have had it. I would say have had it up to here, 
except that will not come across on the record. They have had it with 
profitable corporations and wealthy individuals avoiding taxes through 
the use of tax havens, shell companies, and tax avoidance schemes. The 
American people want us to end it. We ought to legislate an end to it.
  By the way, it is long overdue. We ought to close the tax loopholes 
which are used so the most profitable corporations in this country 
avoid paying taxes by shifting their intellectual property to shell 
corporations that they create in tax havens or by other kinds of tax 
dodging.
  We can put an end to it. We can close those tax loopholes. We ought 
to do it but that is not what should be before us today. What should be 
before us today but for that objection we had from the Senator from 
Kentucky, are the tax treaties which have been approved by our Foreign 
Relations Committee, one of which was signed 4 years ago.
  We have all heard about Swiss bank accounts that are used to hide 
money from Uncle Sam. Back in 2008, in a bipartisan report I issued 
with then the ranking Republican on the Permanent Subcommittee on 
Investigations, Norman Coleman, with bipartisan support, we disclosed 
that UBS, the largest bank in Switzerland, had opened as many as 52,000 
bank accounts, with about $20 billion in assets, for U.S. citizens who 
had hidden their accounts from our Treasury.
  UBS later signed a deferred prosecution agreement with the U.S. 
Treasury and the Department of Justice in which they admitted helping; 
that is, aiding and abetting, U.S. clients evade U.S. taxes. We are 
talking about UBS now. They paid a $750 million fine. They turned over 
the names of about 4,700 U.S. clients who had hidden accounts in that 
bank.
  UBS was not alone. Earlier this year in a bipartisan report--this is 
not a partisan issue--in another bipartisan report that I issued with 
my current ranking member, Senator McCain, the Subcommittee showed that 
Credit Suisse, Switzerland's second largest bank, had been engaged in 
the same type of aiding and abetting. Credit

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Suisse had opened about 22,000 Swiss bank accounts for U.S. account 
holders, with up to $12 billion in assets, that were undisclosed to 
U.S. tax authorities. After its wrongdoing was exposed, Credit Suisse 
pled guilty to facilitating U.S. tax evasion and paid a fine of about 
$2.6 billion.
  In both those cases, the Swiss banks had quietly sent Swiss bankers 
to do business on U.S. soil, opening accounts, sometimes in the name of 
offshore shell corporations, arranging all of that; bringing in cash, 
by the way, from Switzerland; and slipping account statements between 
magazine pages to their U.S. clients. In order that there not be 
anything visible at an airport or wherever, they put the statement of 
their U.S. account holder in a Sports Illustrated magazine and would 
hand the magazine to their clients. How surreptitious can you get?
  We also heard about how U.S. clients who visited Credit Suisse in 
Switzerland rode in a secret, remotely controlled elevator to a room 
with no windows and reviewed documents that were then shredded. Why? 
Why all of that secrecy and surreptitiousness? They wanted to show 
those U.S. clients, to dramatize, just how secretly the Swiss banks 
operate and how those Swiss bank accounts would be hidden from U.S. 
authorities.
  But after years and years of effort, we found out what was going on, 
and we made it public. Even Switzerland could not defend what its banks 
were doing.
  So in 2009, Switzerland agreed to strengthen the U.S.-Swiss tax 
treaty to enable us to obtain more information about secret Swiss bank 
accounts opened by U.S. taxpayers.
  It is still not voluminous information which we are going to get 
under that tax treaty, but it is more information. It would give us a 
better chance of finding the tax dodgers, those U.S. citizens who try 
to avoid paying their share of taxes and dumping the tax load on all of 
their fellow citizens, by the way, who have to pick up the added 
burden.
  So with the existing U.S. treaty--we already have a tax treaty with 
Switzerland, the one that we want to amend--it requires us to establish 
something which is very difficult to prove; that is, tax fraud, before 
Switzerland would hand over the information on U.S. account holders 
with Swiss bank accounts.
  We have treaties with all kinds of countries. No other treaty we have 
has that standard; that we have to show tax fraud before we can get 
information from a foreign bank. So the revised tax treaty, approved by 
the Foreign Relations Committee, again unanimously, would enable the 
United States to obtain information from Switzerland that ``may be 
relevant'' to the ``administration or enforcement'' of U.S. tax laws.
  That is the same standard, ``may be relevant,'' that has been in 
effect for decades in the United States when the Treasury seeks to 
obtain information in a tax inquiry about American citizens from their 
own banks. That standard has been upheld by the U.S. Supreme Court.
  I am not going to go through all of the cases that have upheld this 
standard but there are two direct Supreme Court opinions on the subject 
that say it is proper for Congress to legislate a standard of Treasury 
getting information from banks about our people that ``may be 
relevant'' to the requirement that taxes be paid.
  The standard comes from a 1954 Federal statute that authorizes the 
IRS, for the purpose of examining a tax return or determining a 
person's tax liability, ``to examine any books, papers, records, or 
other data which may be relevant or material to such inquiry.'' The 
statute is 26 U.S.C. Section 7602(a)(1).
  Thirty years ago, the Supreme Court upheld that standard in a 1984 
case called United States v. Arthur Young & Co., 465 U.S. 805. The 
Supreme Court wrote:

       In seeking access to [a corporation's] tax accrual 
     workpapers, the IRS exercised the summons power conferred by 
     Code Sec.  7602, which authorizes the Secretary of the 
     Treasury to summon and `examine any books, papers, records, 
     or other data which may be relevant or material' to a 
     particular tax inquiry. . . .
       The language `may be' reflects Congress' express intention 
     to allow the IRS to obtain items of even potential relevance 
     to an ongoing investigation, without reference to its 
     admissibility. The purpose of Congress is obvious: the 
     Service can hardly be expected to know whether such data will 
     in fact be relevant until it is procured and scrutinized. As 
     a tool of discovery, the Sec.  7602 summons is critical to 
     the investigative and enforcement functions of the IRS. . . .

  In short, the Supreme Court upheld the authority of the IRS to 
request information that ``may be relevant'' to a tax inquiry, and 
described the ability to examine that information as ``critical to the 
investigative and enforcement functions of the IRS.''
  Last week Senator Paul indicated on the floor that the IRS can obtain 
information from a U.S. bank only when it establishes ``probable 
cause'' that the accountholder was cheating on their taxes. In fact, 
the U.S. Supreme Court rejected that approach over 50 years ago in a 
1964 case called United States v. Powell, 379 U.S. 48, in which the 
Court wrote: ``[T]he [IRS] Commissioner need not meet any standard of 
probable cause to obtain enforcement of his summons.''
  The revised U.S.-Swiss tax treaty would instead apply the same 
statutory standard to Americans with bank accounts in Switzerland as 
already applies to Americans with bank accounts in the United States. 
Using the same standard makes perfect sense. Otherwise Americans with 
Swiss bank accounts would have a greater right to stymie IRS 
information requests than Americans with U.S. bank accounts.
  In addition, the Senate has already approved other U.S. tax treaties 
using the relevance standard. They include a 1999 tax treaty with 
Denmark, a 2007 tax treaty with Belgium, and a 2008 tax treaty with 
Canada, among others. Those tax treaties already treat Americans abroad 
in the same way as Americans at home.
  In contrast, Switzerland has long been an exception in need of 
correction. Back in the 1950s, the Swiss somehow managed to get the 
United States to agree to make it harder for the IRS to scrutinize 
Americans with Swiss bank accounts than Americans with U.S. bank 
accounts, which helps explain why so many hidden bank accounts ended up 
in Switzerland.
  The UBS and Credit Suisse bank scandals show it is long past time to 
end the Swiss exception.
  So if we just keep this current treaty, without modifying it, we are 
actually giving a standard to the Swiss that would allow them to keep 
information away from our Treasury that is not permitted in our own 
banks or to banks in any other country that we have a tax treaty with.
  Why would we want to preserve a treaty standard that the Swiss 
themselves have already agreed to replace with a better standard in 
terms of tax collection? I mean, if the Swiss agree to a standard which 
gives us better information, why would we want to keep in place a 
treaty which denies us that information, denies revenue to the 
Treasury, creates a double standard? If you want to avoid paying taxes, 
go to Switzerland and you will have a better chance of evading your 
taxes than if you stay in the United States. Why would we want to give 
an incentive like that?
  That is what we are doing. As long as we have the current treaty in 
place and do not ratify the proposed treaty, that is exactly what we 
are doing.
  It is so unfair to give special treatment to Americans who send their 
money to Switzerland, compared to Americans who keep their money right 
here at home. It is one thing to advocate lower taxes--that is one 
thing--but it is quite another to advocate policies that would help 
U.S. taxpayers use Swiss bank accounts to hide their assets and to 
offload their tax burdens onto the U.S. taxpayers who are not trying to 
dodge paying taxes.
  It has been now 3 years, as Senator Menendez has pointed out, since 
the U.S. Senate has ratified a tax treaty. Ratifying this treaty would 
finally bring the Swiss into alignment with U.S. policy and U.S. tax 
treaties with other countries. Once ratified, it will take effect from 
the date it was signed in order to help stop tax dodging from

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2009 forward. It is long overdue that we ratify this.
  I am very disappointed there has been another objection by Senator 
Paul to proceeding to ratify--or to at least consider the ratification 
of this treaty. I believe Senator McCain will try to come later, if he 
can, to also speak in support of bringing up these treaties for debate.
  I yield the floor.

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