The Treasury Department announced that the United States and Switzerland have signed a bilateral agreement to implement provisions of the Foreign Account Tax Compliance Act (FATCA). The agreement must still be ratified by the Swiss Federal Assembly, and it is also subject to an optional referendum under Swiss law.
FATCA was enacted by Congress in 2010 as part of the Hiring Incentives to Restore Employment Act of 2010, P.L. 111-147. It requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial interest.
The U.S.-Switzerland agreement requires Switzerland to direct all reporting Swiss financial institutions to register with the IRS by Jan. 1, 2014, and comply with FATCA due-diligence, reporting, and withholding requirements. Switzerland also agrees to instruct reporting Swiss financial institutions to request certain information from preexisting account holders and report it to the IRS and to obtain consent from new account holders to report this information as a condition of opening the account.
The United States is obligated to treat reporting Swiss financial institutions that register with the IRS and comply with the terms of an FFI agreement as complying with FATCA and not subject to withholding under FATCA. Some Swiss banks are reportedly no longer accepting accounts with U.S. citizens and green card holders in order to avoid the FATCA requirements.
The United States, France, Germany, Italy, Spain, and the United Kingdom all participated in developing model agreements under FATCA and have agreed to work, in cooperation with other partner countries, the Organisation for Economic Co-operation and Development, and the European Commission, toward establishing reporting and due-diligence standards to fight tax evasion with less burdensome compliance requirements.
Treasury reports that so far eight countries have signed or initialed FATCA agreements with the United States, and that it is discussing FATCA agreements or “viable options for intergovernmental cooperation” with 50 countries.