VZCZCXYZ0000
RR RUEHWEB

DE RUEHSW #0443/01 2871251
ZNR UUUUU ZZH
R 141251Z OCT 09
FM AMEMBASSY BERN
TO RUEHC/SECSTATE WASHDC 6122
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS BERN 000443 
 
SENSITIVE 
SIPDIS 
 
PLEASE PASS TO USTR FOR J.BUNTIN 
DEPT OF TREASURY FOR J.HARRINGTON 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN SZ
SUBJECT: SWISS CAMPAIGN AGAINST PROPOSED OFFSHORE 
REINSURANCE TAX BILL 
 
¶1.  (SBU) SUMMARY:  The Swiss Secretariat for Economic 
Affairs (SECO) and the Swiss embassy in Washington raised 
concerns with post and USTR regarding a draft U.S. offshore 
reinsurance tax bill.  SECO argues that the draft bill if 
enacted will violate both the U.S.-Swiss Double Taxation 
Treaty and U.S. obligations under the WTO General Agreement 
on Trade in Services (GATS).  Letters to the Senate Finance 
Committee by Swiss Ambassador to the U.S. Urs Ziswiler and 
Swiss Re, Switzerland's largest reinsurer outline the 
specific arguments against the bill.  While Post cannot 
address the legal technicalities or legitimacy of the Swiss 
arguments, Post is concerned that the optics of Swiss claims 
that a US draft law will violate our existing double taxation 
agreement could have detrimental effects on the Swiss 
parliament's ratification of the recently revised double 
taxation agreement.  END SUMMARY. 
 
¶2.  (SBU) The Swiss Secretariat for Economic Affairs (SECO) 
Head of Americas Division Philippe Nell raised concerns with 
post and USTR regarding draft legislation, H.R. 3424, which 
will amend the Internal Revenue Code to disallow deductions 
for excess non-taxed reinsurance premiums with respect to 
United States risks paid to affiliates.  SECO argues that the 
draft bill if enacted will violate both the US-Swiss Double 
Taxation Treaty and U.S. obligations under the WTO General 
Agreement on Trade in Services (GATS). 
 
¶3.  (U) In support of these arguments, SECO shared a letter 
from Swiss Ambassador in Washington Urs Ziswiler to the 
Senate Finance Committee in opposition to the bill. 
According to Ziswiler, the draft bill is "incompatible with 
the Double Taxation Convention between the U.S. and 
Switzerland since the proposal violates the 
non-discrimination principle stated in Article 24 of the 
Convention.  According to paragraph 2a an affiliate of a 
Swiss enterprise in the U.S. shall not be taxed more 
unfavorably than a U.S. enterprise.  Paragraph 3 indicates 
that disbursements to a resident in the other Contracting 
State shall be deductible for determining the taxable profits 
to the same extent as disbursements paid to a resident. 
Therefore, reinsurance premiums ought to be deductible for an 
insurance company that does business in the U.S. regardless 
of whether or not the recipient is a related entity as long 
as the transactions are carried out under similar conditions 
as if they were independent entities, and regardless of the 
location of this entity.  Finally, paragraph 4 states that a 
company the capital of which is wholly or partly owned or 
controlled by residents of Switzerland shall not be subjected 
to more burdensome taxation than similar U.S. companies." 
 
¶4.  (U) Ziswiler also writes that he is concerned "the 
proposed provisions would constitute a breach of the U.S. 
obligations under the WTO.  Art. XVII (National Treatment) of 
the WTO General Agreement on Trade in Services (GATS) 
provides for a national treatment obligation for all services 
for which members have undertaken specific commitments."  He 
argues that the US schedule of specific commitments provides 
for national treatment for cross-border provision of 
reinsurance services, so "conditions of operation in the U.S. 
for American and foreign companies should, in law or in fact, 
be the same."  He notes that the Swiss believe the "proposal, 
by limiting the ability of insurance companies to reinsure 
their risk portfolio with related companies abroad, is 
creating a discrimination against imported reinsurance 
services." 
 
¶5.  (U) In summation, Ziswiler notes that the draft proposal 
would be "detrimental to the international conduct of global 
insurance, it would enhance the cost of insurance coverage 
for U.S. consumers, it would discriminate against 
internationally operating companies, and it would conflict 
with bilateral and multilateral conventions to which the U.S. 
is a party."  Swiss Re, Switzerland's largest reinsurance 
company echoes these sentiments in their letter and notes 
that the proposed bill violates fundamental US income tax 
principles and treaties. Post can forward an electronic copy 
of Ziswiler and Swiss Re's letters to the Senate Finance 
Committee upon request. 
 
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COMMENT 
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¶6.  (SBU) While Post cannot address the legal technicalities 
or legitimacy of the Swiss arguments, Post is concerned that 
the optics of Swiss claims that a US draft law will violate 
our existing double taxation agreement could have detrimental 
 
effects on the Swiss parliament's ratification of the 
recently revised double taxation agreement.  The Swiss 
Parliament is still reviewing for ratification the recent 
revisions, which expanded the agreement to include 
administrative assistance on tax evasion.  Some Swiss 
politicians and press criticized the U.S. for previously 
violating the agreement in pursuing bank account information 
from UBS outside of the administrative process.  A second 
claim of violating the agreement will likely cause political 
pundits and the press to opine that the Swiss should not 
ratify an agreement of which the U.S. continually fails to 
comply.  This could place unexpected political pressure on 
Swiss Parliamentarians to refuse ratification.  In addition, 
in a country with a public referendum process, strong press 
opinions could potentially influence public sentiment and 
result in a call for a referendum to nullify parliamentarian 
ratification of the revised double taxation agreement. 
BEYER