Swiss FATCA information exchange agreement with US changes to reciprocal disclosure
FATCA is a unilateral set of US regulations that have applied worldwide for all countries since 2014. It requires foreign financial institutions (FFIs) to disclose information on US accounts to the Internal Revenue Service (IRS) or pay a large penalty to the US government. Because of the administrative burden it imposed on FFIs, most governments made agreements with the US facilitating these data transfers. These intergovernmental agreements (IGAs) generally fell into one of two types, Model 1 or Model 2.
The original agreement between Switzerland and the US, made in June 2014, is of the 'Model 2' type. It requires Swiss banks to register directly with the IRS and give it full details of any accounts operated by US clients who consented to this arrangement. Where clients do not consent, the bank would give the IRS only unidentifiable aggregated information about their accounts, after which the IRS would seek full information on these individuals by making tax assistance requests to the Swiss government through the normal channels.
Switzerland adopted this approach because its banking secrecy laws prohibited the signing of a Model 1 IGA, under which its banks would have to pass all US account data to the Swiss government for automatic forwarding to the IRS. The IGA signed by Switzerland was also non-reciprocal, so that the US authorities have no obligation to report Swiss-owned bank accounts in the US to the Swiss tax authority.
However, Switzerland has previously signalled its intention to switch to a Model 1 agreement. In 2014, the Swiss Federal Council approved the draft mandate for negotiations with the US on switching to Model 1 automatic exchange of information. In September 2019, the double taxation agreement between Switzerland and the US was amended to allow FATCA 'group requests' to be made for cases from 30 June 2014, facilitating the transfer of account data whose owners refused consent for FATCA disclosure.
Negotiations were finally concluded on 13 November 2023 and preparations for signing are now underway, the Swiss State Secretariat for International Finance has now announced. The new IGA follows Model 1, so that Switzerland is entitled to receive details of Swiss-held accounts from the US IRS.
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