Switzerland and the United States on February 14 signed an intergovernmental agreement (Swiss/US IGA) concerning the implementation of the Foreign Account Tax Compliance Act (FATCA) in Switzerland. This is the first IGA to be signed using the Model 2 version first published as draft by the IRS in November last year. The aim of the IGA is to help facilitate FATCA implementation and reduce burdens for Swiss financial institutions.
The Swiss/US IGA confirms that financial institutions in Switzerland are required to enter into FFI agreements directly with the IRS and implement FATCA in accordance with the final regulations except where expressly modified by the terms of the IGA. Some of the more significant modifications included in the Swiss/US IGA are:
Reporting & Withholding on Individual Account Holders
Swiss financial institutions are only required to report information on US accounts where the individual account holders have provided consent to allow such reporting to the IRS. If consent is not received (non-consenting US account), Swiss financial institutions will be required to report aggregate information to the IRS. The IRS may use the aggregate information received as the basis for submitting a group request under the Swiss tax treaty with the United States.
A Swiss financial institution is not required to withhold on non-consenting US accounts until such a time where a group request has been received and the Swiss financial institution is unable to provide the Swiss Competent Authority with the requested information to be exchanged with the IRS within 8 months of the request. In effect, the IGA defers the requirements to withhold on non-consenting US accounts until the group request procedures are exhausted.
Note: There is no similar deferral of withholding related to non-participating foreign financial institutions. In such a situation, a Swiss financial institution will apply the provisions of the final regulations.
Modification in Due Diligence Procedures
Annex I is substantially similar to the Annex I contained in the Model 1 version of the IGA and provides procedures for Swiss financial institutions to follow when conducting the required due diligence for purposes of identifying account holders.