The agreement to implement the US Foreign Account Tax Compliance Act (Fatca) was signed on Wednesday in Bern by Swiss state secretary Michael Ambühl and the US ambassador Donald S. Beyer after it was agreed by the Swiss Federal Council.
The text of the agreement will be published and has to be submitted to parliament for approval and is subject to an optional referendum.
Under Fatca, the US wishes to ensure that all income earned worldwide by US taxpayers on accounts held abroad can be taxed by the US.
Fatca requires foreign financial institutions to notify the US tax authorities (Internal Revenue Service) about identified US accounts. On-site inspections by the IRS at the financial institutions concerned are not permitted.
The agreement ensures that the accounts held by US persons with Swiss financial institutions are disclosed to the US tax authorities. Information will not be transferred automatically in the absence of consent, and instead will be exchanged only on the basis of the administrative assistance clause in the double taxation agreement.
Fatca goes live in the US from 1 January 2014 and Swiss financial institutions will be forced to implement it from this date, or be excluded from the US capital markets. Fatca obliges foreign companies to report offshore accounts by US tax payers that amount to more than $50,000 (SFr45,943).
Swiss finance minister Eveline Widmer-Schlumpf said the deal would allow for certain exceptions, notably for the Swiss insurance sector, pension funds and the Swiss National Bank.
Switzerland will be the second state, behind Japan, to sign up to this agreement. Widmer-Schlumpf said the decision was not taken lightly: “Fatca is not something to rejoice about. But it is a pragmatic solution,” she said.
Swiss banks active in international financial markets have no choice but to apply the US rules, she added.
Swiss political parties remain divided over Fatca with the right-wing Swiss People’s party and centre-right Radical party the most critical, while the Christian Democrats, Social Democratic party and Green party have given it their support.
Fatca was passed in the US in 2010 as part of the Hiring Incentives to Restore Employment Act. It is designed to close loopholes in existing tax compliancy regulations, known as the Qualified Intermediary (QI) accord.
Widmer-Schlumpf said negotiations with Washington on a global settlement for outstanding tax issues were under way. She said US authorities had given assurances that acceptance of the Fatca deal would be considered beneficial to speed up a global deal for Swiss banks that risk court proceedings in the US over illegal tax practices.
The Fatca deal also raises the question of whether Switzerland would accept the exchange of bank data with the European Union. Switzerland has so far refused such demands from Brussels, saying bilateral agreements with individual EU member states on a withholding tax were more practical.
Similar accords with the UK and Austria came into force at the beginning of the year. A deal with Berlin was rejected by the German parliament. Negotiations with a number of other countries are pending.