FATCA: U.S. and Switzerland Agree on Interpretation Pact
Yes, the United States Congress has agreed to delay the commencement of many of the reporting requirements by Foreign Banks resulting from the Foreign Account Tax Compliance Act (FATCA); however, in early June the U.S. and Swiss governments signed a Memorandum of Understanding (MOU) on interpretations of their agreement on implementing FATCA. The initial agreement was signed in February 2013, and despite these two signed agreements, the two countries are still facing key unsettled differences.
FATCA, once implemented, will require foreign financial institutions to report on the assets of U.S. taxpayers to the IRS or face penalties (yes, the U.S. government and the IRS are trying to assess FOREIGN institutions penalties for failure to comply with U.S. laws!). As can be well imagined, FATCA has attracted controversy and protests from foreign banks, and many foreign banks have asked U.S. taxpayers to close their account rather than deal with the reporting obligation required by FATCA. The world’s banks, it appears, really don’t need U.S. investments or deposits.
The MOU summarizes the obligations of Swiss financial institutions, states the relationship with the qualified intermediary system, and confirms the simplified self-declaration for exempt Swiss beneficial owners under the FATCA agreement. Additionally, the MOU states that Swiss financial institutions can generally apply definitions from the implementing provisions of the Treasury Department if these simplify matters relative to the definitions in the FATCA agreement.
Even though implementation of FATCA is delayed, the MOU with Switzerland is seen as a crucial element of international enforcement for the U.S. as the Treasury, Justice Department and IRS have made a priority of uncovering Swiss bank accounts at UBS, Credit Suisse, Julius Baer and other banks. In March, 2013, Wegelin, Switzerland’s oldest bank, agreed to pay $58 million for conspiring to help its U.S. clients and others evade income taxes. In 2009, UBS agreed to pay $787 million as part of a deferred prosecution agreement and later agreed to provide the identities of up to 4,450 U.S.-based clients with undeclared bank accounts. In January 2013, a federal judge ordered the bank to produce information about U.S. taxpayers who were trying to evade U.S. tax by holding accounts at other Swiss banks that did business with UBS.
