Switzerland FATCA Agreement

Switzerland, U.S. initial FATCA agreement

Switzerland has initialed an intergovernmental agreement (IGA) with the U.S. that will eventually be used by Swiss financial institutions to report information on U.S. account holders directly to the IRS. The agreement was reached by both sides on December 3 in Washington, the Secretariat for International Financial Matters (SIF) said in a statement. The text of the IGA will be made available after both countries have signed it.

In February 2012, the IRS issued proposed regulations implementing FATCA. These regulations generally would make it easier to comply with the FATCA rules, expand the types of FFIs deemed to be in FATCA compliance without the need to enter into an agreement with the IRS, and phase-in FATCA reporting and withholding obligations over an extended transition period. The regulations generally would apply when they are finalized. In conjunction with the proposed regulations, Treasury announced that it had entered into an agreement with several European governments to pursue a framework for implementing FATCA and released a Joint Statement with those countries.

On July 26, Treasury, released model IGAs for intergovernmental information sharing under FATCA (Model I approach). A reciprocal model agreement was released for countries with which the U.S. has a tax treaty or tax information exchange agreement (in effect), and a largely identical nonreciprocal model agreement. The agreements clarify the responsibilities of financial institutions in reviewing and reporting accounts based on the identity of the account holder and the balance or value of the account. They also suspend certain requirements relating to recalcitrant account holders.

Treasury said that it hoped Model I agreements would be signed with countries, including Germany, France, Italy, and Spain. A second alternative framework (Model II approach) was also set forth by Treasury, and was outlined in June statements with Japan and Switzerland and will require foreign financial institutions to generally report directly to the IRS. To date, Denmark, Mexico, and the U.K. have signed bilateral reciprocal IGAs (Model I) with the U.S.

Swiss carve-outs. Although the text of the agreement has not been released, SIF said that IGA would simplify procedures for large parts of the Swiss financial sector. Social security, private pension funds, and life and property insurers are excluded from FATCA. Collective investment schemes and financial institutions with mostly local clientele will be deemed to comply with FATCA and will only be subject to registration requirements. Additionally, the agreement establishes simplified due diligence requirements with respect to the identification of U.S. clients already subject to reporting by other Swiss financial institutions in order to avoid excessive administrative burden of compliance to avoid excessive compliance burdens.

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