The Treasury Department has signed a bilateral agreement with Switzerland to share tax information in an effort to improve tax compliance and combat international tax evasion.
The agreement came as part of the effort to implement the Foreign Account Tax Compliance Act, or FATCA, which was included as part of the HIRE Act of 2010.
On Jan. 17, 2013, the Treasury Department and the IRS finalized the regulations implementing FATCA, providing additional certainty for financial institutions and government counterparts about the process for U.S. account identification, information reporting, and withholding requirements for foreign financial institutions, other foreign entities, and U.S. withholding agents (see Treasury Releases Final FATCA Regulations to Fight Offshore Tax Evasion).
The Treasury has signed bilateral agreements with a number of countries so far to share information with their tax authorities, including the United Kingdom, Denmark, Mexico and Ireland.
But the agreement with Switzerland is particularly significant as the Internal Revenue Service and the Justice Department have been pursuing information from Swiss banks like UBS, Credit Suisse, Wegelin and Julius Baer to uncover information about U.S. taxpayers with secret bank accounts, while negotiating with the Swiss government over its longstanding banking secrecy laws.
The agreement would implement FATCA with respect to all Swiss financial institutions, ensure that all the required information about identified U.S. accounts will be reported to the IRS and remove legal impediments to compliance. It would also increase legal certainty by clarifying which Swiss financial institutions are subject to FATCA implementation, reduce implementation costs including by suspending under certain circumstances certain withholding and account closing obligations, and simplify the necessary due diligence procedures.
Switzerland is one of eight countries that have signed or initialed an intergovernmental agreement, which helps to facilitate the effective and efficient implementation of FATCA. In addition to the previously announced countries, the Treasury noted that it initialed an IGA with Italy on January 24. The Treasury is currently in talks with more than 50 countries and jurisdictions to curtail offshore tax evasion, and more signed agreements are expected to follow in the near future.
“Today’s announcement marks a significant step forward in our efforts to work collaboratively to combat offshore tax evasion,” said Acting Secretary of the Treasury Neal S. Wolin in a statement. “We are pleased that Switzerland has signed a bilateral agreement with us, and we look forward to quickly concluding agreements based on this model with other jurisdictions.”
Enacted by Congress in 2010, FATCA targets noncompliance by U.S. taxpayers using foreign accounts. The bilateral agreement signed Thursday is the first based on the model published in November of 2012—the second of two model agreements—and marks another important step in establishing a common approach to combatting tax evasion.
Updates and further information on FATCA can be found by visiting the Treasury FATCA page.