Swiss and US move forward on tax compliance
US taxpayers should think carefully about what they declare to the IRS (401K 2012/flickr)
The United States and Switzerland have reached an agreement to crack down on tax evasion by Americans, a move meant to help banks comply with upcoming US tax regulations. A final accord is still be negotiated though.
The announcement on Thursday expands the list of countries already cooperating with the US Treasury to implement the US Foreign Account Tax Compliance Act, or Fatca, a 2010 anti-tax evasion law.
The US legislation has worried foreign banks that have American clients as banks face penalties if they refuse to give the US certain client information required under Fatca.
The law, which will become effective in 2013, is particularly problematic for Switzerland, which has a tradition of strict bank secrecy. But the Swiss government said it would allow banks to comply and report accounts to the US authorities by granting an exception to Swiss criminal law.
Switzerland's State Secretariat for International Financial Matters said in a statement that a refusal to implement Fatca would cause major disadvantages for the Swiss financial centre.
“The prohibitive withholding tax of 30 per cent 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,” it added.
The Americans were also satisfied with the latest agreement.
“The intergovernmental framework announced today provides a second model for implementing Fatca in a way that addresses domestic legal impediments and reduces burdens on financial institutions,” said the acting assistant secretary for tax policy, Emily McMahon, in a US treasury statement.
“We welcome Switzerland’s willingness to strengthen and improve their cooperation with the United States in combating international tax evasion.”
While Switzerland and Washington have agreed elements of a deal, they still have to conclude a final agreement, which the Swiss said would be negotiated in the months ahead.
Items to be discussed include social security and pension funds as well as property insurance, which should be exempted from Fatca. Financial institutions operating on local and regional levels would be deemed compliant, and Swiss banks would not have to report the names of recalcitrant US clients or close their accounts.
The Swiss Bankers Association said it welcomed the move, particularly the fact that banks would be able to hand over data directly to the US authorities and not via the government as in the solution proposed with five European states.
"This better takes into account the particular characteristics of the Swiss financial centre," the lobby group said in a statement.
The US treasury said in February it was negotiating with France, Germany, Italy, Spain and Britain to set up government-to-government information-sharing deals.
For the Swiss and Japan, which reached a similar accord with the Americans this week, the exchange of information is to take place directly between the financial institutions and the Internal Revenue Service.
The Swiss government is still trying to get US tax investigations against 11 banks - including Credit Suisse and Julius Baer - dropped in exchange for the payment of fines and the transfer of client names.
The banks are suspected of helping wealthy Americans evade taxes through secret Swiss accounts. Flagship bank UBS was forced in 2009 to pay a fine and release the names of 4,500 clients to US officials to end a damaging probe.
Switzerland is also seeking a deal to shield the remainder of its 300 or so banks from US prosecution.
Swiss Finance Minister Eveline Widmer-Schlumpf said earlier this month that US officials seemed to want to end the dispute before the presidential election in November.