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Switzerland, US Sign FATCA Accord

by Ulrika Lomas, Tax-News.com, Brussels

25 July 2013


Switzerland and the United States have signed a Foreign Account Tax Compliance Act (FATCA) agreement in Bern, which will help Swiss financial institutions by simplifying the implementation of the US tax legislation.

The FATCA agreement was signed by Swiss State Secretary Michael Ambühl and by the US ambassador Donald Beyer. During its meeting on February 13, 2013, the Federal Council had already given the Federal Department of Finance (FDF) the go-ahead for the accord to be signed.

Initialed on December 3, 2012, the agreement provides for simplifications in implementing FATCA. The text of the agreement will also be published now that it has been signed. It has to be submitted to the Swiss parliament for approval and is subject to an optional referendum in Switzerland.

With the enactment of FATCA, the United States wishes to ensure that all income earned worldwide by US taxpayers on accounts held abroad can be taxed by the United States. FATCA essentially requires foreign financial institutions to conclude a contract with the US Internal Revenue Service (IRS) that imposes reporting requirements on them regarding identified US accounts. In the case of grave errors being committed during implementation, the IRS may submit requests for information to the financial institutions concerned, about which it has to inform the Swiss authorities. On-site inspections by the IRS at the financial institutions concerned are not permitted.

The FATCA agreement negotiated with Switzerland allows Swiss financial institutions to exchange information with the IRS. The Final Regulations published by the US Treasury and the IRS on January 17, 2013, are applicable to Swiss financial institutions to the extent that the agreement and its annexes do not expressly make provision for derogations from the rules.

The agreement that has now been signed provides for simplifications for large sections of the Swiss financial industry:

  • Social security funds, private pension funds and property and casualty insurers are excluded from the scope of FATCA.
  • Collective investment vehicles and financial institutions with a predominantly local clientele (i.e. at least 98% of clients are from Switzerland or the EU) are deemed FATCA-compliant under certain conditions and are subject only to a registration obligation and the associated obligations.
  • The due diligence requirements for the identification of US clients, to which all other Swiss financial institutions are subject, are designed in such a way that the administrative burden is kept within reasonable limits.

The agreement ensures that accounts held by US persons with Swiss financial institutions are disclosed to the US tax authorities either with the consent of the account holder or by means of group requests within the scope of administrative assistance. Information will not be transferred automatically in the absence of consent, and instead will be exchanged only on the basis of the administrative assistance clause in the double taxation agreement.

As the United States will phase in FATCA from January 1, 2014, Swiss financial institutions will be forced to implement FATCA from this date, irrespective of an agreement between Switzerland and the United States, if they do not want to be excluded from the US capital market. Without an agreement, however, they could not benefit from simplified implementation and would thus be at a disadvantage relative to competitors in other financial centers. It is important therefore that the agreement can come into force on January 1, 2014.

Owing to the urgency and importance of the matter, the Federal Council has decided to conduct an abbreviated consultation on the FATCA agreement as well as on the corresponding implementing act. Interested parties have four weeks to submit their views.

In order to enable swift handling of the approval process, the Federal Council has also announced submission of the FATCA dispatch to the parliamentary offices.

Independent of FATCA, both countries are continuing to work together in good faith to seek a solution for the past. Such a solution must address the law enforcement needs of the United States as well as the interests of Switzerland in a settlement for the Swiss financial sector. In this regard, the successful conclusion of the FATCA negotiations has been considered as a positive signal by the responsible US authorities.

TAGS: Finance | tax | investment | interest | law | enforcement | legislation | Switzerland | United States | Compliance

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