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US, SWISS LAUNCH FATCA NEGOTIATIONS: US TAXPAYERS, SWISS BANKS AFFECTED
By Ellen Wallace, GenevaLunch, 21 June 2012.
BERN, SWITZERLAND – The United States and Switzerland jointly issued a declaration Thursday on their agreement to start negotiations on the implementation of Fatca (Foreign Account Tax Compliance Act ).
Fatca, which is strongly opposed by some groups of Americans, notably American Citizens Abroad, is US tax legislation that goes into effect in 2014. In addition, the two countries say they are still negotiating outstanding past bank and tax issues. Eleven Swiss banks are currently being investigated by the US for suspicion of helping US citizens evade taxes.
ACA notes that “foreign financial institutions will be required by the US government under the Foreign Account Tax Compliance Act (Fatca) to report information regarding accounts of US citizens to the IRS.
This law requires foreign financial institutions (FFI) such as your local bank, stock brokers, hedge funds, pension funds, insurance companies, trusts, etc – to report directly to the IRS all their clients who are ‘US persons’ (citizens and green card holders living in the USA or abroad). The penalties for the institutions that do not cooperate are steep.”
The statement issued by Bern is reproduced here in its entirety because of the major impact the new agreement has on Americans living in Switzerland. ACA has repeatedly cautioned that banks may soon refuse US citizens as clients, not just in Switzerland, but in other countries as well, to save themselves the risk and expense involved in meeting IRS (US tax arm) requirements.
We are publishing, as a companion piece, an article by Amy Webster, a Swiss-American living in Morges. Hers is one of several cases GenevaLunch has had drawn to its attention in the past month, as Swiss banks step up their efforts to identify US clients.
Ed. note: I was speaking to a French woman and a Dutch man, both of whom have moved to Switzerland in the past two months, in separate conversations this morning. Both say that when they opened bank accounts they were asked if they are American and were told that if they have green cards or US passports they would not be able to open accounts.
THE PRESS RELEASE FROM THE SWISS STATE SECRETARIAT FOR INTERNATIONAL TAX MATTERS Switzerland and United States announce declaration on FATCA implementation
Bern, 21.06.2012 – Today, Switzerland and the United States announced a joint declaration on the implementation of the US tax legislation known as FATCA. The details are to be negotiated in the months ahead. The Federal Council will adopt a mandate for negotiating an intergovernmental agreement beforehand. This should increase legal certainty for affected financial institutions and reduce implementation costs.
With the enactment of the Foreign Account Tax Compliance Act (FATCA) on 18 March 2010, the United States wishes to ensure that all accounts held abroad by US taxpayers are actually taxed. FATCA basically requires foreign financial institutions (FFIs) to enter into a FATCA agreement with the Internal Revenue Service that imposes reporting requirements on them regarding US accounts. A financial institution has to obtain the client’s consent in order to submit such reports. A client who does not consent is considered recalcitrant. In the case of such clients, financial institutions have to withhold 30% on all payments coming from the United States.
The implementation of these provisions is generating high costs and legal uncertainty worldwide. Switzerland’s refusal to implement FATCA would cause major disadvantages for the financial centre. The prohibitive withholding tax of 30% 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.
The key points of the declaration signed today are based on a model developed by Switzerland and Japan in collaboration with the United States that accommodates the needs of both countries. Unlike the implementation model of five large EU countries (Germany, France, Italy, Spain, United Kingdom), the exchange of information is to take place directly between the financial institutions and the Internal Revenue Service rather than via centralised government data gathering.
Simplifications could be provided for within the scope of an intergovernmental agreement.
The following facilitation measures are sought under the joint declaration: