The Federal Administration, however, has moved quickly to defuse the situation. In a statement issued on January 27, if says: “The Swiss Federal Council firmly believes that the ongoing threat of a conflict with the USA over legal and sovereignty matters – with all of its negative impacts on Switzerland as a center of finance and business – can be eliminated for good only by executing the UBS Agreement.”

The Court's decision of January 21 was reached on three separate points of law. It classified the Treaty Request Agreement of August 19, 2009, as merely a mutual agreement that permitted no change to terms that had been given binding definitions in the bilateral double taxation agreement.

Indeed, the Court ruled that the protocol to the double taxation agreement defines "tax fraud or the like" conclusively as tax or duty fraud, which does not include any serious tax offenses in the sense of the continued evasion of large sums of tax.

According to the Federal Administration: “The Federal Council approved the Treaty Request Agreement after careful examination of the legal situation and on the basis of expert opinions. The Federal Administrative Court viewed the legal situation differently. The Federal Council must acknowledge the Court's ruling and put it into action. It has thus instructed the Federal Department of Finance (FDF) to cancel a further 25 final decisions that are still pending before the Federal Administrative Court.”

It continues: “Given that the Federal Administrative Court's benchmark ruling is legally enforceable, it is thought that treaty assistance will be ruled out in around 4,200 cases. Only in around 250 cases may information be exchanged with the US authorities. If this problem cannot be resolved through consultations or negotiations, under the UBS Agreement the USA might take 'proportionate rebalancing measures' to rectify the inequality that has arisen between agreed rights and obligations. There might therefore be a risk that the USA will resume the civil proceedings (known as the 'John Doe Summons' proceedings) against UBS, and that a US court may rule that the bank must hand over data relating to around 4,450 accounts."

In a first step, the Federal Council has confirmed that it intends to continue negotiations with US authorities in an attempt to explain the situation from its perspective. The Federal Council's options for action would then be discussed with the US authorities. Switzerland will then request that the US provides detailed information on client data received under the disclosure program.

In a possible second step, Switzerland might then put the UBS Agreement to Parliament for approval, the administration notes – an approach the Federal Administrative Court's ruling had put forward as a possible solution. In that case, in any future appeals, the Court could not then regard the agreement as merely a mutual agreement; rather, the agreement would stand as a treaty of the same status as the older and more general bilateral double taxation agreement and, according to general rules of interpretation, would take precedence.

The Federal Administration statement concludes: “An amendment to the Agreement should permit its provisional application from the date of signature. Here, the Federal Council is basing its actions on the authority granted to it under governmental and administrative organization law, which permits such steps to be taken to safeguard Switzerland's important interests, and in cases of particular urgency. This means that UBS can continue to fulfill its obligations to the Swiss Federal Tax Administration (SFTA). For its part, the SFTA can continue to conduct the treaty request process and issue the necessary final decisions. Although client dossiers in legally enforceable cases may not be sent to the US authorities until the Agreement has been approved by parliament, this approach makes it possible to comply with the deadlines set in the Treaty Request Agreement, which remains binding under international law.”