Hot off the Treasury web site. Switzerland capitulated! Canada next?
Feb 14, 1:33pm Auckland time: Updated with James Jatras posting below:
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
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