Switzerland and United States announce declaration on FATCA implementation
Bern, 21.06.2012 - Today, Switzerland and the United States announced a joint declaration on the implementation of the US tax legislation known as FATCA. The details are to be negotiated in the months ahead. The Federal Council will adopt a mandate for negotiating an intergovernmental agreement beforehand. This should increase legal certainty for affected financial institutions and reduce implementation costs.
With the enactment of the Foreign Account Tax Compliance Act (FATCA) on 18 March 2010, the United States wishes to ensure that all accounts held abroad by US taxpayers are actually taxed. FATCA basically requires foreign financial institutions (FFIs) to enter into a FATCA agreement with the Internal Revenue Service that imposes reporting requirements on them regarding US accounts. A financial institution has to obtain the client's consent in order to submit such reports. A client who does not consent is considered recalcitrant. In the case of such clients, financial institutions have to withhold 30% on all payments coming from the United States.
The implementation of these provisions is generating high costs and legal uncertainty worldwide. Switzerland's refusal to implement FATCA would cause major disadvantages for the financial centre. The prohibitive withholding tax of 30% on all payments from the United States and the likely consequence that foreign financial institutions would terminate their business relationships with Swiss financial institutions in the medium term would result in exclusion from the world's largest capital market.
The key points of the declaration signed today are based on a model developed by Switzerland and Japan in collaboration with the United States that accommodates the needs of both countries. Unlike the implementation model of five large EU countries (Germany, France, Italy, Spain, United Kingdom), the exchange of information is to take place directly between the financial institutions and the Internal Revenue Service rather than via centralised government data gathering.
Simplifications could be provided for within the scope of an intergovernmental agreement. The following facilitation measures are sought under the joint declaration:
- Certain financial institutions such as social security funds, pension funds and property insurers should be exempt from FATCA (so-called exempt FFIs).
- Certain financial institutions that operate primarily on a local or regional basis will be deemed compliant with FATCA, (deemed-compliant FFIs).
- Financial institutions are not obliged to report the names of recalcitrant US clients, make a tax deduction or close the client's account. The United States can request administrative assistance concerning such recalcitrant clients by means of group requests.
- The easing of other requirements for Swiss financial institutions, e.g. regarding the identification of existing clients as US persons, is also to be included.
Negotiations between Switzerland and the United States on the resolution of outstanding tax issues concerning the past are still ongoing. It is hoped that an agreement will be reached by year-end.
Address for enquiries
Mario Tuor, Head of Communications, State Secretariat for International Financial Matters (SIF),
+41 31 322 46 16, email@example.com
Federal Department of Finance