US-Swiss FATCA exception clause very narrow

Added 7th March 2016

Despite the recent FATCA carve-out agreed between the US and Switzerland, US citizens looking to circumvent their tax reporting obligations will have to look further afield if they want to avoid declaring their offshore assets.

US-Swiss FATCA exception clause very narrow

The US and Swiss authorities agreed an exception to the United States’ Foreign Account Tax Compliance Act (FATCA) last month. As a result, Swiss accounts held for specific purposes by the lawyers or notaries of US taxpayers are excluded from the scope of FATCA and the clients can remain anonymous.

But the announcement is not the “get out of jail free card” that some may think it is.

Narrow application

Max Koss, director international business and tax at Warren Averett, said: “It’s intended to be fairly narrow where it applies. There are four items noted in this agreement where they have tried to be very specific about the exceptions.”

The agreement states that: “Such an account and the assets deposited are exclusively maintained within the framework of the lawyer or notary’s profession-specific activities (and not in the capacity as a financial intermediary) subject to lawyers or notary professional confidentiality under Swiss law.”

Joshua Ehrenfeld, partner at Nashville-based law firm Burr & Forman, concurred: “It’s only certain monies and accounts that are protected. And those are accounts that are meant to do traditional things that attorneys hold money for. So escrows for closings, retainers for legal costs and fees. Assets with respect to pending divorce. Security collateral in relation to an ongoing transaction.

“Put bluntly, what are the odds that a Swiss lawyer is going to stick his neck out on behalf of a US person trying to hide money?”

“From that standpoint it’s not really that big of a carve-out. It maintains the efficacy of the Swiss legal regime and the ability of Swiss lawyers to work with clients, as they would expect to be able to, from a confidentiality standpoint,” he said. 

Minimal carve-out

“It’s always the case that people will try to use exceptions to their advantage. Any time there is a ‘loophole’ people will try to find a way to exploit it,” said Ehrenfeld. 

The limited scope of the exception clause and the global reputation of Swiss lawyers means that, “the chance for someone to exploit the carve-out is really minimal". 

“FATCA was originally intended to go after US citizens who were hiding their money in Swiss bank accounts. You don’t think of those activities being done by lawyers.

“Put bluntly, what are the odds that a Swiss lawyer is going to stick his neck out on behalf of a US person trying to hide money?” Ehrenfeld added. 

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About Author

Kirsten Hastings

Senior Reporter

Kirsten is a senior reporter for International Adviser, covering global news stories about the financial services industry. She joined Last Word Media in October 2015 after two years working as a reporter covering the staffing and recruitment industry. Kirsten has a Masters in Financial Journalism from the University of Stirling. 


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