The US Treasury and Swiss government have signed a model II intergovernmental agreement (IGA) that details how Swiss-based financial institutions must comply with the Foreign Account Tax Compliance Act (FATCA).
FATCA requires foreign financial institutions (FFIs), which include non-US private equity firms, 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.
The seven other countries, including the UK, that have signed FATCA agreements have all used the model I IGA. This allows for the automatic reporting and exchange of information in relation to accounts held in FFIs by US persons, and the reciprocal exchange of information regarding US financial accounts held by foreign residents.
Model II differs in that Swiss-based financial institutions will need to report directly to the IRS rather than through Swiss tax authorities. This type of IGA also has no reciprocal provision meaning that the IRS will not need to provide Switzerland with information on Swiss account holders in US financial institutions.
The Swiss Bankers Association welcomed the agreement that will reduce the overall cost and complexity of the Act for the Swiss tax authorities and financial institutions.
Foreign funds will be able to enter into an FFI Agreement with the IRS on 15 July when it opens its FATCA registration portal.They must register by 25 October, to be included on the IRS's list of participating FFIs, to avoid the withholding tax that begins on 1 January.
The signing of IGAs has picked up the pace in 2013 with Norway and Ireland signing agreements with the US back in January and the US advancing talks with more than 50 countries.