Swiss tax diplomat urges caution in debate over exchanging data

ZURICH (Reuters) - Switzerland's chief finance diplomat urged caution in a domestic debate on automating the exchange of data on alleged tax cheats, saying the system may not win the favour worldwide that it has in most of the European Union.

"Nobody is currently - and I emphasise currently - asking for Switzerland to institute the automatic exchange of information. Not the OECD, not the EU, not the United States," Michael Ambuehl told a gathering of bankers in Zurich on Thursday.

Switzerland has vehemently rejected the automatic exchange of bank client data, which is currently the practice in most of the European Union. But a small number of bankers are privately questioning whether it would be a cheaper, easier alternative to various tax agreements struck or sought by Switzerland with other countries.

The Swiss government is fighting to salvage the remnants of banking secrecy, which is under pressure as foreign governments seek to cover their budget gaps by cracking down on funds hidden in Swiss offshore accounts.

Switzerland has already struck withholding tax deals with Britain and Austria as part of a larger strategy to clean up its reputation as a haven for offshore, untaxed funds.

Swiss finance minister Eveline Widmer-Schlumpf in December sought to launch a public debate over how much information Switzerland shares under a slew of new agreements including the recently inked FATCA, or Foreign Account Tax Compliance Act.

She said she continues to back Switzerland's strategy to preserve client secrecy.

"We must be careful that the debate within Switzerland does not give the impression abroad that Switzerland wants to abandon this protection, and that it wants to introduce the automatic exchange of information automatically, so to speak," Ambuehl told the gathering on Thursday.

Ambuehl gave scant details on current negotiations with U.S. authorities to end investigations into Swiss banks including Credit Suisse and Julius Baer over helping wealthy Americans evade taxes.

"Whether we like it or not, the United States has the ability to destabilise the entire Swiss financial center by taking measures against Swiss banks," Ambuehl said.

The most prominent example of this is Wegelin & Co, Switzerland's oldest private bank, which last month shut its doors after pleading guilty to charges of helping wealthy Americans evade taxes through secret accounts.

Ambuehl said he could give no further information as talks with the United States were continuing, but that this month's deal on FACTA could favour the broader Swiss bank talks.

Last month, Widmer-Schlumpf said she believes a deal can be clinched to the matter, which represents the largest tax issue looming over Swiss banks.

(Reporting by Katharina Bart; Editing by Catherine Evans)