The FATCA Agreement between Switzerland and the United States
With the enactment of the Foreign Account Tax Compliance Act (FATCA) in 2010, the United States wanted to ensure that all accounts held abroad by U.S. taxpayers can actually be taxed. On February 14, 2013, Switzerland and the United States signed a FATCA implementation agreement.
The Federal Council will put the FATCA agreement into force on July 1, 2014. In the U.S., FATCA will be introduced gradually as of July 1, 2014.
U.S. persons holding accounts with financial institutions outside the U.S. have to disclose those accounts to the U.S. tax authorities. FATCA is a U.S. law that requires all foreign financial institutions to report the accounts of their U.S. clients to the IRS if they do not want to incur a U.S. withholding tax on U.S. source income. The withholding tax would be applied not only on capital earnings, but also on principal payments, thus making it prohibitive for any foreign bank that wants to do business in the U.S. capital market.
FATCA applies worldwide for all countries. In February 2013, Switzerland and the U.S. formally signed a FATCA agreement. Early on Switzerland decided to pursue a constructive strategy with regard to FATCA. The FATCA agreement enables Swiss financial institutions to benefit from simplified implementation procedures, thus avoiding a competitive disadvantage relative to other financial centers. The agreement ensures that accounts held by U.S. persons at Swiss financial institutions are reported to the IRS either with the consent of the account holder or by administrative assistance channels through group requests.
In Switzerland, opponents of the FATCA agreement were unable to collect the 50,000 signatures required to hold a referendum on the agreement. The Federal Council will therefore put the FATCA agreement between Switzerland and the U.S. into force on July 1, 2014. In the U.S., FATCA will be introduced gradually as of July 1, 2014.