German probes of UBS AG clients in the country have the potential to be exploited politically as a tax treaty with Switzerland comes to a vote, UBS Chief Executive Officer Sergio Ermotti said today.
“Many of these issues have the potential to be totally instrumentalized for political reasons,” Ermotti said at a banking conference in Zurich. “We’re trying to resolve the issues of the past. But we also have to realize that if you’re the largest and the biggest, you are a target.”
The planned tax treaty, due to enter into force in 2013, is threatened by a veto in the upper house of Germany’s parliament, dominated by parties opposed to Angela Merkel’s ruling coalition. Wrangling over the treaty has centered on provisions for taxing assets previously hidden by Germans in Swiss bank accounts. The opposition says proposed terms are too lenient.
So far the German states of Baden-Wuerttemberg and North Rhine-Westphalia have said they will reject the accord in next week’s upper-house vote.
A tax agreement with Germany would be a “win-win situation” for governments, clients, banks and employees, Ermotti said. “What you see coming out is clearly unfortunate. We’re in the middle of the final mile of this long process.”
German authorities this week raided homes and offices of about 100 UBS clients to examine allegations they may have hidden money in Swiss accounts. German investigators have in recent years bought compact discs holding account data of bank clients with money in Switzerland or Liechtenstein, leading to probes of thousands of potential German tax cheats.
Ermotti said he doesn’t want to speculate on what may happen if Germany’s parliament rejects the agreement. “We’ll work through whatever needs to be done,” he said. “We’ll address the situation when we’re there.”
UBS is “very committed” to business in Germany and has no intention of scaling it back, Ermotti said. “We shouldn’t let these last miles and last minutes of difficulties hamper the strategic rationale.”
As well as pursuing the treaty with Germany, which will impose a withholding tax on funds held by Germans in Switzerland, the Swiss government has struck similar deals with Austria and the U.K. An agreement with Italy could be reached by the end of the year, Martin Maurer, head of the Association of Foreign Banks in Switzerland, said on Nov. 1.
While next week’s vote is “a very important date, there is potentially still room for other solutions,” Ermotti said, adding that UBS fully supports the Swiss government’s strategy.