The Swiss and U.S. governments have signed a memorandum of understanding on interpretations of their agreement on implementing the Foreign Account Tax Compliance Act, or FATCA.
The MoU was signed Friday by Swiss ambassador Manuel Sager and the Treasury Department’s assistant secretary for tax policy Mark Mazur. The U.S. and Switzerland initially signed a bilateral agreement in February to implement FATCA, but the two countries nevertheless remained at odds on some key issues for how Swiss banks, which are traditionally known for secrecy, would cooperate with U.S. authorities (see
Within the scope of the negotiations on the FATCA agreement signed on Feb. 14, 2013, both sides agreed to set out individual interpretations of a technical or administrative nature in a memorandum of understanding. The MoU summarizes the obligations of Swiss financial institutions, states the relationship with the qualified intermediary system, and confirms the simplified self-declaration for exempt Swiss beneficial owners under the FATCA agreement. In addition, the MoU states that Swiss financial institutions can generally apply definitions from the implementing provisions of the Treasury Department if these simplify matters relative to the definitions in the FATCA agreement.
FATCA was included as part of the HIRE Act of 2010 and requires foreign financial institutions to report on the assets of U.S. taxpayers to the Internal Revenue Service or face stiff penalties. The law has attracted controversy and protests from foreign banks, in addition to expatriates and dual citizens, who argue that FATCA violates other countries' banking secrecy laws. In response, the Treasury has been extending some of the deadlines and softening some of the requirements, while also negotiating intergovernmental agreements with other countries in accordance with tax treaties. However, Sen. Rand Paul, R-Ken., recently introduced legislation to repeal provisions in FATCA that he contends undermine the privacy of U.S. citizens (see
The agreement with Switzerland is seen as a crucial element of international tax enforcement for the U.S., as the Treasury, the Justice Department and the IRS have made a priority of uncovering secret Swiss bank accounts at UBS, Credit Suisse, Julius Baer and other banks. In March, Switzerland’s oldest bank, Wegelin, agreed to pay $58 million for conspiring with its U.S. clients and others to evade income taxes (see
In 2009, UBS agreed to pay $787 million as part of a deferred prosecution agreement and later agreed to provide the identities of up to 4,450 U.S.-based clients with undeclared bank accounts. This past January a federal judge ordered the bank to produce information about U.S. taxpayers who were trying to evade U.S. taxes by holding accounts at other Swiss banks that did businesses with UBS.
