The agreement, which was described as an "intergovernmental framework" that still had some details that remained to be worked out, differs from a framework jointly announced in February by five European countries and the US, ahead of the pending implementation of the US’s Foreign Account Tax Compliance Act.
That earlier agreement provided a framework whereby financial institutions in these five countries would forward the necessary data on American account-holders to the governments of the respective countries, which then would forward it to the US Internal Revenue Service.
The deal agreed between the US and Switzerland and Japan is slightly different in that it would involve the banks in those countries to report directly to the IRS.
In a statement, US acting assistant secretary for tax policy Emily S. McMahon said the new frameworks provided "a second model for implementing FATCA" in a way that she said "addresses domestic legal impediments" while reducing the burden on financial institutions in both countries.
The US, she added, welcomed Switzerland and Japan’s "willingness to strengthen and improve their cooperation with the United States in combating international tax evasion".
As reported, FATCA was signed into law in 2010 by President Obama in an effort to try to bring into the US tax net income realised by US citizens that US officials believe is accumulating in undeclared bank accounts around the world. At the time the legislation was passed, the total value of such hidden assets was estimated at around $10bn.
Under FATCA, banks and other foreign financial institutions that refuse to disclose information to the IRS face a 30% withholding tax on US source payments regardless of whether the recipient is a US taxpayer.
Swiss banks a target
The new agreement with Switzerland is considered particularly significant, since that country has long been a favourite banking centre for wealthy Americans (as well as those of other nationalities), due to its formidable bank secrecy laws, and for this reason has been in the IRS’s cross-hairs for some time.
Some have noted that the passage of FATCA in 2010, in fact, came in the wake of high-profile US tax investigations into secret Swiss bank accounts held by American citizens, which in 2009 led to Switzerland agreeing to hand over to the US the details of some 4,450 Swiss bank accounts held by Americans.
Responding to the news of the agreement yesterday, the Swiss Bankers Association noted that it had "long pointed to" the difficulties FATCA presented to its members, and said it welcomed "the start of negotiations between Switzerland and the US for a facilitated implementation".
It said this arrangement better suited "the particular characteristics" of the Swiss financial industry than that drawn up earlier in the year between the US and the five European countries.
"Also positive are the possibility of simplified client identification, and the preservation of [qualified investor status] for financial institutions considered as deemed compliant," the SBA added. .
To view a copy of the joint statement issued by the US Treasury and Switzerland yesterday, click here; to view the US/Japan joint statement,click here.
