Tax deal with UBS hits snag

MIAMI (Reuters) - The U.S. government said it was having trouble hammering out a settlement of its tax-evasion dispute with Swiss bank UBS (UBSN.CH)AG and asked a judge to delay a trial in the case that was set to begin on Monday.

"There are still some issues that remain to be resolved. The parties are working through these issues and plan to continue talking," U.S. Justice Department attorney Stuart Gibson said on Friday.

The U.S. government is seeking the identities of thousands of wealthy American clients of UBS suspected of using offshore accounts at the bank to conceal assets and evade U.S. taxes. The dispute threatens to harm U.S.-Swiss relations.

Speaking in a teleconference with Miami federal court Judge Alan Gold, who is presiding over the case, Gibson asked for the trial to be delayed another week to give negotiators time to strike a definitive out-of-court settlement.

Gold scheduled a new status conference for August 12 and said trial could begin on August 17 if the parties fail to reach a deal.

"By then (August 12) we would hope to have worked through the remaining issues and to have initialed a written agreement," Gibson said. "If the parties have not reached agreement, we would expect to report where the parties are in their discussion or whether they have been unable to reach an agreement."

The parties had been widely expected to announce a final settlement. It was not immediately clear what obstacles remained.

Swiss Justice Minister Eveline Widmer-Schlumpf said in a statement that negotiators "will work intensively at the clarification of the details of the settlement."

The trial of a U.S. government lawsuit against UBS was originally scheduled for July 13. Gold agreed to delay it until August 3 to allow time for a settlement, then agreed to delay it until August 10 following an "agreement in principle" between the two sides, announced July 31.

Gold pressed to try the case by August 17, noting the scheduling constrains of his other trials. "I'm not forcing it, but on the other hand if we're not there and you want more time, then we're into at least September 21," he said on the call.

Asked in Washington if he thought the "agreement in principle" was in danger of falling apart, State Department spokesman Robert Wood said, "I'm not aware that it's in danger of falling apart."

UBS shares rose on Friday. They closed up 2.8 percent at 16.34 Swiss francs in Switzerland, and were up 4.5 percent at $15.43 in New York.

GLOBAL RIPPLES

The case has rippled across the global offshore banking industry because it marks the biggest legal challenge ever to Switzerland's famed bank secrecy.

In February, UBS agreed to pay $780 million to settle criminal charges it was facing under a separate but parallel tax dispute with the U.S. government. It agreed to hand over data related to about 250 U.S. clients who held secret accounts and promised to close its offshore business to U.S. clients.

Officials said the Swiss government rolled back its regulations to the limit to transfer the data without formally violating its laws, but tax lawyers said the case was a blow to bank secrecy.

Swiss banking rules have been under pressure for years and are gradually eroding. Another blow were concessions the Swiss government made in March to abandon the distinction between tax fraud and tax evasion when dealing with foreign authorities.

Some 5.8 billion Swiss francs flowed out of UBS' Wealth Management America franchise in the second quarter, which the bank linked to the U.S. tax spat.

"I am very surprised they have not resolved the issues," said Milan Patel, Geneva-based tax lawyer at Withers LLP.

"There clearly is some impediment, which I suspect is on the Swiss side as they have to work out a carve-out that appears to not violate Swiss bank secrecy law," said Patel, a former official of the U.S. tax-collection agency IRS who is helping U.S. holders of secret Swiss accounts go through voluntary tax disclosure.

UBS has 34,000 employees in the United States, more than rivals Morgan Stanley , Goldman Sachs Group Inc and Credit Suisse . It is the top share trader across the New York Stock Exchange and Nasdaq Stock Market combined.

(Reporting by Tom Brown; additional reporting by Jim Loney in Miami and Lisa Jucca in Zurich; additional writing by Jonathan Spicer in New York; editing by Jim Loney and John Wallace)