FATCA MOVES AHEAD IN SWITZERLAND – TIME TO DISCLOSE IS RUNNING OUT

On June 7, 2013, Switzerland signed a Memorandum of Understanding (MOU) with the US on interpretations regarding US Foreign Account Tax Compliance Act (FATCA). The Swiss Federal Department of Finance stated: “Within the scope of the negotiations, both sides agreed to set out individual interpretations of a technical or administrative nature in a MOU.” Legislation allowing for the sharing of America citizens’ bank data will go before the Swiss parliament in its summer session. The Federal Council asked the two houses of parliament to approve the treaty. Timing is crucial because the US will begin to implement FATCA in January 2014 and without a treaty Swiss financial institutions, will find it costly if they don’t provide data to the IRS.

In 2010, the US Congress adopted the Foreign Account Tax Compliance Act (FATCA) to fight tax evasion. Under this legislation, foreign financial institutions will give up names and data of all their customers who are subject to American tax. This means that the data of American citizens, non-nationals resident in the US, American expatriates, and foreigners with significant holdings in the US will be revealed. All financial institutions are required to register with the Internal Revenue Service and to enter into an agreement by which they will be asked to identify customers subject to America tax and give their names and bank data to the IRS. Financial institutions that do not cooperate will be excluded from the international financial system.

Several European Union countries have already concluded a FATCA agreement with the US based on what is called “Model I”, which provides for automatic exchange of tax information between the two sides. Under this model, foreign financial institutions do not need to obtain consent or waiver from costumers. All relevant information about US account holders will be reported to local tax authorities which then automatically report the information to the IRS. The Swiss government signed the Model II intergovernmental Agreement on February 14, 2013. Under Model II, it will be up to the banks themselves to send names and data of their customers directly to Washington. In order for this to occur, banks are required to obtain the consent of the costumers. Clients who refuse to comply will be hit with a 30% tax at source on payments coming from the US. Banks are also required to notify the IRS of the number and total assets of accounts belonging to costumers unwilling to cooperate. The IRS can then ask for full details as part of a request for administrative assistance to the Swiss authorities. As the Swiss government formulated it, the agreement provides for “semi-automatic exchange of information.” Regardless of the language being used, however, beginning January 1, 2014, banking secrecy will no longer exist in Swiss dealings with the US.

The 2012 OVDP can help taxpayers avoid prosecution and repatriate their money without constantly worrying about the IRS’s next move to crackdown on the failure to file FBARs. In some cases participation in the 2012 OVDP may not be warranted and alternative strategy may make sense. Taxpayers continuing their non-disclosure and non-compliance are not only risking significant criminal and monetary implications, but their money can be put to better use with legitimate investments and opportunities both locally and abroad.

Vic Abajian, a tax attorney in Los Angeles, has handled dozens of foreign and international tax compliance matters involving millions of dollars. He has assisted taxpayers in disclosures of over $250 million to the IRS. He is a former IRS Attorney that has been dealing extensively with international tax issues in complex matters for individual and multinational businesses.