The American Lawyer - Focus Europe, Summer 2011

citizenship) was mainly based on
information contained in the so-
called Form A. This form was,
however, originally established to
prevent money laundering. In a
number of cases the addresses of
the account holder and/or the
beneficial owner on the Form A
had not been updated although
some customers had left the US
many years previously. This led to
many inclusions of clients that did
not fall into the category of US
persons. These customers had to undertake serious
efforts to prove their new place of residence where
they settled, in some cases, 10 or more years ago. Such
account holders were therefore wrongly identified as
being US persons.

Dr Urs Feller at Prager Dreifuss in Zurich

DID IT MATTER WHETHER THE ACCOUNT WAS HELD
DIRECTLY OR BY A FOUNDATION, A TRUST OR AN UNDER-
LYING COMPANY?
As the Form A requires the identification of the
beneficial owner(s) of the funds held in a Swiss bank
account, the names of these individuals are on file with
the respective banks. It therefore did not matter
whether the account was held by the US person or by a
structure.

HOW HAS THE TERM ‘BENEFICIALLY OWNED’ BEEN INTER-
PRETED BY THE SWISS FEDERAL TAX ADMINISTRATION
AND THE SWISS FEDERAL ADMINISTRATIVE COURT?

In a number of cases the term ‘beneficially owned’ has been the most controversial of the criteria.

The Swiss Federal Administrative Court explained that an account could only be regarded as being beneficially owned by a US person when the US person retained the decision making competence on how the assets were managed and how the income/assets were distributed. The court underlined that the decision is made on a case-by-case basis, whereby a number of elements would be considered.

For example, in case of a (Liechtenstein) foundation if:
l a mandate agreement is in place between the US
person and the board members;
l the US person is entitled to change the statutes of
the foundation at anytime;
l the US person is identified in the regulations as
being the sole beneficiary during his/her lifetime
with arrangements taking effect after death;
l the US person is identified in the statutes as default
beneficiary;
l the US person and the board of the foundation and
the sole beneficiary were identical;
l the US person holds signatory rights on the account
of the foundation.

US-domiciled clients of UBS
were included irrespective of
their citizenship. In addition, the
term US person also included
US citizens or green card
holders without regard for their
place of residence.

the conclusion that the US person beneficially owned the accounts.

In another case, the Swiss Federal Administrative Court rendered a judgment concerning an irrevocable and discretionary trust. The underlying company held a bank account with UBS. According to the SFTA the beneficiaries of the trust were (for anti-money laundering purposes) regarded as the beneficial owners of the aforementioned company’s bank account. The trust’s beneficiaries, however, argued that the account could not be attributed to them, neither legally nor beneficially. In addition, in line with the structure, the members of the class of beneficiaries did not have any rights of administration of the trust’s assets and also had no signatory rights on the accounts. By applying the principle ‘substance over form’, the court followed the beneficiaries’ line of argument and rejected the exchange of information. In the view of the court, the beneficiaries of a discretionary and irrevocable trust were not entitled to any assets since all the powers to manage and distribute assets are vested with the trustee. Such a trust’s beneficiaries therefore have only equitable ownership of the trust’s assets as they are not entitled to but are, nevertheless, among the persons who can receive a distribution. Consequently, the accounts were not considered to be beneficially owned by the appellants in the sense of the applicable agreement. In such cases Form A is to be replaced by Form T, as form T is used for assets or patrimonies without specific beneficial owners. ■