FATCA Implementation In Switzerland – A General Overview

Author:Mr Jean-Luc Herbez and Vincent S. Reardon-Kofmel
Profession:Froriep Renggli
  1. Background

    On 18 March 2010, the U.S. Hiring Incentives to Restore Employment Act of 2010 (known as the Hire Act) amended the U.S. Internal Revenue Code of 1986, respectively its sections 1471 through 1474 which are commonly referred to as the Foreign Account Tax Compliance Act ("FATCA"). FATCA is implemented through the Final Regulations1 issued by the U.S. Treasury Department and the Internal Revenue Service (the "IRS") on 17 January 2013 (the "Final Regulations").

    FATCA targets non-compliant U.S. taxpayers with offshore accounts by requesting foreign (i.e., non U.S.) financial institutions ("FFIs") to report certain information to the IRS regarding their United States accounts ("U.S. Accounts")2.

    Participating FFIs3 will have the obligation to (i) register, and as the case may be enter into an agreement, with the IRS in order to (a) identify U.S. Accounts, (b) report certain information to the IRS regarding U.S. Accounts and (ii) withhold a 30 percent tax on all payments originating from the United States to Non-Participating FFIs4 and/or account holders who are unwilling to provide the required information5. A Non-Participating FFI will therefore be subject to the 30 percent withholding tax under FATCA upon receipt of such funds.

    Unless an FFI is prepared to lose its access to the U.S. economy or lose commercial relations with Participating FFIs, the only option is to adhere to FATCA's implementation.

  2. Approaches towards Implementation

    Participating FFIs face the daunting task of complying with the terms and requirements set forth under FATCA and the Final Regulations (over 540 pages).

    In order to reduce FATCA's administrative and financial burden on domestic financial institutions, any non-U.S. State may negotiate FATCA's implementation terms through an intergovernmental agreement.

    Since FATCA's adoption, several countries including some of Switzerland's neighbours (France, Germany and Italy) have concluded, or entered into negotiations with the U.S. Department of the Treasury to conclude, a so-called first model intergovernmental agreement characterized by the establishment of an automatic exchange of information between the IRS and the respective national tax authority6.

    Switzerland, however, has signed with the United States a so-called second model intergovernmental agreement, the Implementation Agreement7, which excludes such automatic exchange of information. It provides that Swiss Financial Institutions ("SFIs") shall register with and report directly to the IRS the information regarding U.S. Accounts as required by FATCA. Through the adoption of the FATCA Message dated 10 April 2013, the Swiss Federal Council submitted...

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