Switzerland and the US have agreed a memorandum of understanding (MOU) that provides greater detail around the obligations of Swiss financial institutions under the US Foreign Account Tax Compliance Act (FATCA).
Under the agreement Swiss financial institutions, including private equity firms, need to gain their clients’ permission before being identified to US tax authority the Internal Revenue Service (IRS). Swiss firms would also be required to inform the IRS if it has accounts or funds that are not FATCA compliant.
It's worth noting that US citizens denying a Swiss GP the right to disclose their tax details to US authorities may still have their identity tracked down under the two country’s double taxation treaty.
The US and Switzerland signed a FATCA intergovernmental agreement in February using the US government's “model II” template, meaning that Swiss-based financial institutions will need to report directly to IRS rather than through Swiss tax authorities. The agreement also has no reciprocal provisions, meaning that the IRS will not need to provide Switzerland with information on Swiss account holders in US financial institutions.
FATCA requires foreign financial institutions to enter into a reporting relationship with US tax authorities or face a hefty 30 percent withholding tax on certain payments travelling outside the US.
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