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Switzerland, US Initial FATCA Agreement

by Mike Godfrey., Washington

06 December 2012

On December 3, 2012 in Washington, D.C., Switzerland and the United States initialed an agreement for the implementation of the Foreign Account Tax Compliance Act (FATCA).

FATCA was enacted by Congress in March 2010 and is intended to ensure that the US tax authorities obtain information on financial accounts held by US taxpayers with foreign financial institutions (FFIs). Failure by an FFI to sign an agreement with the US Internal Revenue Service (IRS) and disclose information would result in a requirement to withhold 30% tax on US-source income.

While the text of the US FATCA agreement with Switzerland will not be disclosed until after its approval, it is believed to follow that which was outlined in a joint statement in June this year, reflecting the business-to-government approach for cooperation between Swiss FFIs and the US government.

Under the agreement, the Swiss government would enable all Swiss FFIs to register with the IRS by January 1, 2014, and conclude the necessary FFI agreements to comply with the obligations prescribed by the FATCA rules, including its due diligence, reporting and withholding tax terms with respect to accounts identified as being held by US taxpayers.

In particular, the US-Swiss agreement would ensure that accounts held by US persons at Swiss FFIs are reported either individually, with the consent of the account holder, or, if consent is not given, by administrative assistance channels through group requests. Under the latter, the FFI would be able to provide aggregate information on all such accounts to the Swiss tax authority, which would then be authorized to transmit the group data to the IRS.

Therefore, if the holder’s consent is not given, detailed account information will not be exchanged automatically, but only on the basis of the future administrative assistance provision in a Swiss-US double taxation agreement, which is itself still being negotiated.

In consideration of the above, the US has agreed to provide certain simplifications for certain sectors within the Swiss financial industry. In particular, Social Security and private retirement funds, as well as casualty and property insurances, will be exempt from the application of FATCA; while collective investment vehicles, and Swiss financial institutions with a predominantly local clientele, can be deemed to be FATCA-compliant and subject only to a registration obligation.

The agreement, which should be in operation by January 1, 2014, is now subject to the approval of the Swiss Federal Council and Parliament and to an optional treaty referendum.

A comprehensive report in our Intelligence Report series, analysing the situation on the ground in each of the main offshore banking centres, is available in the Lowtax Library at and a description of the report can be seen at
TAGS: individuals | compliance | tax | investment | pensions | tax information exchange agreement (TIEA) | tax compliance | law | banking | insurance | retirement | investment funds | Internal Revenue Service (IRS) | tax authority | offshore | agreements | offshore banking | banking secrecy | withholding tax | Switzerland | United States | Compliance

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