Switzerland and the United States have signed a controversial deal aimed at cracking down on wealthy American tax dodgers. The accord further undermines Switzerland’s tradition of banking secrecy.
The Foreign Account Tax Compliance Act (Fatca) obliges foreign firms to report offshore accounts by US tax payers that amount to more than $50,000 (SFr45,943).
The signing on Thursday came the day after Finance Minister Eveline Widmer-Schlumpf told a news conference that Switzerland had decided to agree to a bilateral deal with the Internal Revenue Service (IRS) which allows for certain exceptions, notably for the Swiss insurance sector, pension funds and the Swiss National Bank.
Switzerland is only the second state after Japan to opt for this type of agreement; most other nations are reportedly willing to sign a standard agreement.
Widmer-Schlumpf made no bones that the cabinet struggled to take a decision.
“Fatca is not something to rejoice about. But it is a pragmatic solution,” she said. She said further details of the accord would be published after the signing.
Swiss banks active in international financial markets have no choice but to apply the US rules, according to Widmer-Schlumpf.
Parliament still has to discuss the issue, after which the agreement can come into effect in theory at the beginning of 2014.
In an initial reaction to Widmer-Schlumpf’s announcement, the rightwing Swiss People’s Party said it reserved the right to reject the Fatca deal. It accused Washington of imposing its laws outside its own borders and lacking respect for the sovereignty of other states.
The Swiss Bankers Association said it welcomed the signing of the agreement although the banks continue to view Fatca "critically" due to the costs it incurs and the administrative burden it creates.
The Foreign Account Tax Compliance Act (Fatca) was passed in the US in 2010 as part of the Hiring Incentives to Restore Employment Act.
It is designed to close loopholes in existing tax compliancy regulations, known as the Qualified Intermediary (QI) accord.
The law obliges foreign firms to report offshore accounts and security trades by US clients that amount to more than $50,000 (SFr47,942).
If they fail to do so, they will be hit with a 30% withholding tax.
The US plans to bring Fatca into force in stages, starting as early as next year.
Widmer-Schlumpf said negotiations with Washington on a global settlement for outstanding tax issues were still under way but she refused to elaborate.
The finance minister added the US authorities had given assurances that acceptance of the Fatca deal would be considered beneficial to speed up a global deal for Switzerland’s financial sector.
The government has been trying to strike a deal for about a dozen Swiss banks which risk court proceedings in the US over illegal tax practices.
Widmer-Schlumpf said the Fatca deal could also put more pressure on Switzerland to accept the automatic exchange of bank data with the European Union.
Until now Switzerland has refused to cave in to demands from Brussels, saying bilateral agreements with individual EU member states on a withholding tax were more practical.
Accords with Britain and Austria came into force at the beginning of the year. A similar deal with Berlin was rejected by the German parliament. Negotiations with a number of other countries are pending.