Hot off the Treasury web site. Switzerland capitulated! Canada next?
Feb 14, 1:33pm Auckland time: Updated with James Jatras posting below:
Treasury, Switzerland Sign Bilateral Agreement to Improve Tax Compliance, Combat International Tax Evasion and Implement FATCA
WASHINGTON – The U.S. Department of the Treasury announced today that it has signed a bilateral agreement with Switzerland to facilitate the implementation of the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA).
“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. “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 non-compliance by U.S. taxpayers using foreign accounts. The bilateral agreement signed today 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.
Switzerland is one of eight countries that have signed or initialed an intergovernmental agreement (IGA) which helps to facilitate the effective and efficient implementation of FATCA. In addition to the previously announced countries, Treasury initialed an IGA with Italy on January 24. Treasury is engaged with more than 50 countries and jurisdictions to curtail offshore tax evasion, and more signed agreements are expected to follow in the near future.
On January 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 (FFIs), other foreign entities, and U.S. withholding agents.
Updates and further information on FATCA can be found by visiting the Treasury FATCA page at http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx
The agreement can be found at http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Agreement-Switzerland-2-14-2013.pdf
U.S.-Swiss ‘Intergovernmental Agreement’ a Dubious Win for FATCA
James George Jatras for RepealFATCA.com
February 14, 2013
Today the U.S. Treasury Department announced it had signed an “intergovernmental agreement” (IGA) for the enforcement of the “U.S. Foreign Account Tax Compliance Act” (FATCA) in Switzerland. The announcement apparently breaks a dry spell for Treasury in its continuing efforts to dragoon foreign states, euphemistically dubbed “FATCA Partners,” into submitting to the extraterritorial imposition of this expensive and burdensome U.S. law on their institutions and citizens.
The Swiss agreement is the first one finalized on the “Model 2” “non-reciprocal” IGA version, under which the non-U.S. “Partner” dispenses with even the pretense that this is a mutual exchange of information. By signing the agreement, Switzerland is unilaterally capitulating to Washington’s threat of sanctions and not even claiming to get anything in return except (hopefully) some small relief from the massive costs FATCA would impose.
Even that hope is illusory in light of the fact that under “Model 2,” Swiss institutions would report directly to the IRS instead of to the Swiss tax authority. Also of doubtful value is the inclusion on Annex II of the IGA of entities “deemed compliant” with FATCA, such as the Swiss Central Bank, since the U.S. side can insist on modification of the IGA (including “to remove entities, accounts, and products . . . due to changes in circumstances”) simply by threatening unilateral cancellation of the agreement (under Article 16(2)).
Swiss citizens will have their say, Americans will not
Even Swiss supporters of the IGA show little enthusiasm for an agreement imposed only because of a U.S. threat of what amount to sanctions:
Bankers Association “welcomes” signing, but remains critical of Fatca
The Swiss Bankers Association said Thursday noon that it “welcomes the signing of an agreement” and hopes for a swift ratification. Thanks to the agreement, “the complexity and costs arising from the unilateral Fatca legislation introduced by the US will be reduced for Swiss financial intermediaries.” But it remains critical of Fatca, stating that “The banks nevertheless continue to view Fatca critically due to the costs it incurs and the administrative burden it creates. Were they, however, to refuse to implement Fatca, they would face competitive disadvantages internationally that would jeopardise their survival.”
Parliament and Swiss media, where several voices have objected to the US imposing its own laws in other countries, may be less enthusiastic, and it remains to be seen if pragmatism wins out. [Source: “US-Switzerland sign controversial Fatca agreement (update) , February 14, 2013”
But at least on the Swiss side the IGA will be tested by constitutional procedures and the democratic voice of the people. The IGA must win parliamentary approval and may possibly be put to a popular referendum. The Swiss People’s Party – part of the governing coalition and largest party in the parliament – has said it reserved the right to reject the FATCA deal, accurately accusing “Washington of imposing its laws outside its own borders and lacking respect for the sovereignty of other states.” If the Swiss people take a hard look at what clearly is a bad deal, they will say No.
On the American side, by contrast, Treasury claims the IGA is just an “Executive Agreement,” requiring no Congressional approval. That may not wash on Capitol Hill. Even though the U.S.-Swiss IGA cites the U.S. tax convention in several places and claims to be acting “pursuant” to it, the IGA is not being submitted to the Senate for its advice and consent. Indeed, the IGA even cites as authority amendments to the U.S.-Swiss tax convention that have not yet even been ratified, having been held up in the Senate on constitutional concerns by Senator Rand Paul (R-Kentucky).
In short, some in Congress will see the IGAs with Switzerland and other countries – which are nowhere mentioned in or authorized by FATCA or any other statute – for what they are: Treasury’s blatant disregard for Congress’s authority and an attempt to end-run the American democratic process. We will see whether they will be allowed to get away with it.
Meanwhile, all not well on the “reciprocal” front
While the Treasury Department and FATCA supporters can be expected to tout the U.S.-Swiss agreement as evidence they are back on a roll in herding countries into IGAs, in reality efforts to secure signatures of “Partner” governments still appear to be slow going. Treasury remains far behind their target of 17 countries they had expected to sign up by the end of 2012 and of the 50 they claim to be negotiating with, particularly those that (unlike Switzerland) require at least the fiction of evenhandedness in the “Model 1” version.
In particular, “negotiations have not progressed with key U.S. trading partners Canada and China.” Canada, our largest trading partner with many dual-citizens, expats, and “accidental Americans” who would be particularly hard hit by FATCA, would find compliance particularly difficult, with an IGA or without. China, for both practical reasons and on principle, appears steadfast in telling the U.S. it won’t comply. As Nigel Green, CEO of deVere Group has noted:
The entire FATCA project could ultimately come unstuck if China refuses to comply, and start a domino effect all over the world. If that were to happen, FATCA would become a farce, as it cannot effectively function without the agreement of every government all over the globe.
Let’s hope so!
James George Jatras
Visit www.RepealFATCA.com for more information on “the worst law most Americans have never heard of”
Jack Townsend has come good commentary coming from Tax Notes:
Swiss and US Sign IGA (2/15/13)
BTW, Michael Cohen just deleted two of my comments. I am having a little email conversation with him about journalist scribes. Will see how it goes, and I might blog about it later. However, Roger’s is still there, and it is a good one,
Here is an interesting analysis on theSwiss IGA model 2
The general argument seems to be that the purpose of FATCA is to destroy tax havens and go after tax cheats. Yet, the agreement with Switzerland seems to stress a different concept;
Globe and Mail coverage of this:
Note this paragraph ; …..”The pact announced on Thursday, known as an intergovernmental agreement (IGA), needs to be ratified by the Swiss parliament. It does not need approval by the U.S. Senate. “…..
“The Treasury is working with more than 50 countries to complete deals, but negotiations have not progressed with key U.S. trading partners Canada and China.”
Cartoon re Widmer-Schlumpf signing away Swiss with a FATCA IGA.
Well, at least it’s a sign of progress on the awareness front when FATCA starts showing-up in editorial cartoons. Unfortunately, we’re likely to see a lot more of it all over the world.
@Deckard1138, you’re right about the awareness. It would raise awareness here too if a Canadian cartoonist in one of the big papers would do a warning one, and as there is never any shortage of ‘ugly American’ images to draw on, it would be very easy.
The Swiss government is reviewing a new law to better protect the country’s sovereignty, in direct response to the pressure that the US has exerted on Switzerland. Below is a translation of a brief article describing the new law which is in hearings until 31 May 2013. Perhaps Canada should consider a similar law to deal with the thug on its southern border:
“Swiss Federal Council wants to protect the country’s sovereignty with a better law
20th February 2013 – 12:02
If foreign authorities exert pressure in Switzerland on Swiss businesses or individuals, the Federal Council wishes to protect the country’s sovereignty. A new law is to regulate the international cooperation with authorities.
The call for a Sovereignty Protection Act was primarily related to the tax dispute with the U.S. when the U.S. authorities factually forced UBS actually to hand over bank data. Dealing with cases in which the Swiss sovereignty can be compromised previously lacked sufficient legal means, the Swiss Federal Office of Justice held in a report on the topic.
The Swiss Federal Council wants to fill these and other loopholes with a new law, such as the Department of Justice and Police (FDJP) announced on Wednesday. A draft of the collaboration and Sovereignty Protection Act goes up to 31 May 2013 for consultation.
This includes rules about how Switzerland early on can protect against violations of their sovereignty. The Swiss Federal Council may prohibit, inter alia, to prescribe the disclosure of information or documents, seize documents or place the business of a company under state control.
To be regulated are also the conditions under which the Swiss Federal Council may issue a permit for someone to act for a foreign state. Under Article 271 of the Penal Code, this is only allowed with permission. So far, however, it was hardly explained what criteria must be met to obtain a permit.
An article in today’s Neue Zürcher Zeitung is called “Swiss banks give Americans the cold shoulder”. Translation follows:
“Swiss banks give Americans the cold shoulder
Neue Zürcher Zeitung, Economic News, February 20, 2013, 06:00
It has become more difficult for Americans to establish a company in Switzerland. Due to extensive expense, Swiss banks are often unwilling to enter into a business relationship with them.
cei. Washington ⋅ An American wants to start a company to market his products in Switzerland. For two years now, people from the United States stand, however, before ever higher hurdles and are disappointed when it does not work or the process takes several months. Anyone who wants to start a GmbH or AG in Switzerland has to set up a paid-in capital deposit account with a Swiss bank. This is an escrow account to which the capital of the company is paid. Once the company is registered in the commercial register, the money becomes available. This first step is for Americans no small thing shows a small survey of major banks.
Easier for Indonesians
Most restrictive is the Zürcher Kantonalbank (ZKB). It communicated that it was not possible for a person domiciled in USA to open a paid-in capital deposit account. The reason given by ZKB is that the bank has completely withdrawn from business with any people resident in the United States. Credit Suisse advises that the possibility is not excluded per se. The PostFinance will open such an account, if the company is shown to be operating in Switzerland. For a domiciliary company – a company with no operating activities which manages assets – the Americans must live in Switzerland, otherwise no account opening is possible. UBS says that the establishment of a capital contribution account for Americans was “generally permissible.” However, a business relationship with a company which an American controls is not possible.
According to Maximilian Friedery of the MAF Zurich Consulting Group in Wollerau it has become difficult for American-Swiss dual citizens to obtain a paid-in capital deposit account. Friedery’s business is to advise foreigners in Switzerland on how to start companies. It has been his experience that it is now easier for Indonesians than for Americans to enter into business relations with a Swiss bank. The investigations could go so far that even a family tree are required to move forward, according to Friedery.
The costs of investigations have become for Swiss banks so high for entering into business with Americans that it is often not worthwhile. Those providing the service have greatly increased the fees. It is stated in a letter from Credit Suisse to a Swiss subsidiary company with American owners that an additional fee of CHF 5,000 will be required if the balance falls below CHF 500,000. Credit Suisse explains this with the huge increase in cost is to ensure that all rules are followed with cross-border banking business.
“Ways can be found»
How widespread are the problems for Americans? This mainly affects small businesses. Friedery says in the last twelve months 12 Americans used his services. From these Americans he had only one response who had managed the hurdles. It is a manufacturer of energy drinks which will also serve the Swiss market. Martin Naville, CEO of the Swiss-American Chamber of Commerce, on the other hand, stated that they had always found a solution when American SMEs wanted to establish a subsidiary in Switzerland. They then work together with cantonal economic development agencies.
It is undisputed that because of the ongoing tax dispute that everything has become more complicated. The difficulties for Americans to find banking services for corporate customers in Switzerland is more collateral damage of the global crusade against U.S. tax evaders. Swiss banks treat all American customers with gloves due to the tax dispute. They have become unattractive as customers – Americans can thank the government in Washington.”
This looked interesting: http://www.wnd.com/2013/02/obama-skirting-congress-in-globalist-plan/ “…..The issue centers on “fast-track authority,” a provision under the Trade Promotion Authority that requires Congress to review an FTA under limited debate, in an accelerated time frame subject to a yes-or-no vote.
Under fast-track authority, there is no provision for Congress to modify the agreement by submitting amendments. Fast-track authority also treats the FTA as if it were trade legislation being negotiated by the executive branch. The purpose is to assure foreign partners that the FTA, once signed, will not be changed during the legislative process.
A report released Jan. 24 by the Congressional Research Service, “The Trans-Pacific Partnership Negotiations and Issues for Congress,” makes clear the Obama administration does not have fast-track authority to negotiate the TPP, even though the office of the U.S. Trade Representative is acting as if fact-track authority is in effect……”
It seemed to be an attempt similar to the tactic used re FATCA, and DATCA, to bypass Congress.
See also, comments made here about FATCA: http://www.compasscayman.com/journal/2013/02/06/Taxes-FATCA-%E2%80%93-symbol-of-the-mercenary-tax-state/
Would be interesting to hear what Prof. Christians thinks about the Trans-Pacific Partnership. And, if the Congressional Research service did a report on whether Obama has the authority to act on the Trans-Pacific Partnership, was any Congressional Research service report done on FATCA (and DATCA)?
Very aware of this issue with TPP. Would you mind moving the comment or adding it over here, where I have been tracking TPP…
So does this mean it is all ‘Done and Dusted’?
BERN, SWITZERLAND – The Swiss government formally adopted the Fatca tax agreement with the United States Wednesday morning, publishing at the same time the results of its consultation (French, German) with interested parties within Switzerland.
Fatca en route for Swiss banks, as agreement adopted by Bern
@Just Me: The answer is no. Today the Swiss administration approved the FATCA law and sent it to the Swiss two-house parliament for review and approval. If the Swiss parliament approves it, which I expect, it could then be subject to a referendum (if either recommended by the parliament or if enough signatures are collected, as I understand it).
The nationalist SVP, the largest party but not in majority, is against the FATCA law primarily because it is extra-territorial and infringes on Swiss sovereignty. The Greens are against it because they want full data exchange with all countries, i.e., they are only making noise and not really against FATCA, in my opinion.
Here’s the Handelszeitung take on today’s events (in German):
Luxembourg plans tax info agreement with EU
Clock ticks on Swiss banking secrecy
The foreign assault against Swiss banking secrecy continues – after the European Union and the United States, the G20 has joined the throng. Switzerland is ever more isolated after Luxembourg dropped its opposition to sharing bank data with its partners.
In an opinion piece published by the French newspaper Le Monde on April 10, Swiss Finance Minister Eveline Widmer-Schlumpf defended Switzerland’s so-called clean money strategy, outlining the measures taken by the government to fight tax evasion
Swiss Parliament Pushes Back on U.S. Banks Deal
Plan for Swiss Banks to Hand Over Data on American Clients Is Sent Back to Upper House
ZURICH—Swiss lawmakers dealt a serious blow Tuesday to a plan that could enable the country’s banks to avoid the threat of prosecution in the U.S. by collectively coming clean about their dealings with suspected American tax evaders.
The lower house of Parliament voted 126-67 against even considering the plan, which would allow banks to skirt Switzerland’s banking secrecy law and hand information to U.S. authorities about the undeclared holdings of their American clients, as well as the bank employees who assisted those clients.
The vote sends the measure back to the upper house, which had approved it last week, for further debate and another show of hands as early as Wednesday. A reversal there would mean the legislation’s demise—and could lead to severe legal complications for Swiss banks in U.S. courts. Approval would send it back to the lower house.
read more here.. http://online.wsj.com/article/SB10001424127887324021104578552930613288170.html
Adding the other two story references from FATCA questions…