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Treasury, Switzerland Sign ‘so called” Bilateral Agreement (IGA) to Improve Tax Compliance, Combat International Tax Evasion and Implement FATCA

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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

2/14/2013 ​
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

Washington, DC

 

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

www.RepealFATCA.com

@RepealFATCA

+1.202.375.1007

 

Visit www.RepealFATCA.com for more information on “the worst law most Americans have never heard of”

43 thoughts on “Treasury, Switzerland Sign ‘so called” Bilateral Agreement (IGA) to Improve Tax Compliance, Combat International Tax Evasion and Implement FATCA”

  2. “It requires Swiss banks to sign up directly with the U.S. Internal Revenue Service, while giving the banks a way to avoid violating Swiss financial secrecy laws.”

    How is that possible?

  3. Sorry I got my answer a little later in the article:

    “The Swiss deal does not require Swiss banks to automatically give the IRS account-holder information if the U.S. client refuses to co-operate. But the IRS can still get that information via Swiss government authorities.”

    “At the end of the day, the IRS gets the information it wants, it’s just going to take a little bit longer,” said Laurie Hatten-Boyd, a principal with Big Four accounting firm KPMG LLP.

  4. “Also, the Swiss deal is not reciprocal”.

    And after all the attacks from the US on their banks, they’re not even interested in reciprocity…. Unbelievable.

    So what do they get in return? Access to the US market? A better deal on all the litigations they have going on with their banks?

    I bet they regret having actively looked for wealthy Americans.

    It reminds me of a quote of one of my favorite movies: “Le Chateau de ma mere”, where Pagnol’s father says:

    “Comme on est faible quand on est dans son tort.” after they’re discovered using the key to use the shortcut through the castle.

    The English translation would be something like: “One is so weak when you’re in the wrong”. Maybe someone can translate it better.

  9. From the Wall Street Journal Blogs…

    Treasury, Switzerland Ink FATCA Compliance Agreement

    Switzerland is one of several countries that have thus far signed or initialed a FATCA agreement with the U.S., Treasury said. Switzerland is the first country to sign an agreement based on the second model issued by Treasury, which the department issued in November 2012.

    I don’t have an account, so don’t know exactly how they spin this, and what is just regurgitation of the Treasury press release. Or maybe that is all they had to say?

  10. BTW,

    Here is the direct link to the Reuters story if anyone wants to comment….

    I just put this up, and it is in moderation…

    I don’t think this statement is correct. You say

    “In signing the pact, Switzerland joins Britain, Denmark, Ireland and Mexico as countries that have finished FATCA IGAs with the United States.”

    To be FINISHED, means there is Parliament approval process and Swiss law changes needed to implement, and that is not so yet..

    From GenevaLunch.com Google: US-Switzerland sign controversial Fatca agreement (update)

    They say…

    “Bern says in a statement issued after the signing, noting that the agreement must be submitted to parliament for approval. It is also subject to an optional referendum.”

    So, this isn’t over and finished, until the FATCA Lady sings…

    On a side note, this may be treated as a Tax Treaty by the participating countries (not bilateral by any means as it is basically a one way cram down) requiring their legislative approval. On the US side, Treasury has engineered these to be a Competent Authority (CA) Agreement, and not a Tax Treaty. Very clever. You have to love those FATCAnatics!

    This way they don’t have to get Senate ‘Advise and Consent” and really open themselves up to Congressional scrutiny with how they are going about subverting the will of Congress. Congress could still wake up so there may be other hurtles ahead.

    Out of moderation now.

  11. News was picked up last night on the FT (subscription only: http://www.ft.com/intl/cms/s/0/85ade6a6-76c1-11e2-b925-00144feabdc0.html#axzz2KZNxExuH). Have simply pasted in link to the Jatras website under comments.

    FT’s coverage of the FATCA issue has been very patchy to date (it’s as if they believe it’s not really worth reporting on…). Whenever the matter has come up, reporting has been one-sided, with lots of quotes from UK-based tax lawyers saying that how important it is to comply…

  12. I have been reading all of this for the last few days(new to this site),what I think will happen between Canada and the USA will be the Keystone pipeline. USA will approve if Harper will join. Harper is so all about having this come about that it will be a done deal ! Sorry day for Canada

  13. @Jane Mow

    Welcome to the Isaac Brock Society. You may very well be right that this is the calculus going on in Harper’s office – selling-out one-million U.S. Persons in Canada for the chance to finish selling-out Alberta’s aboriginal population on the way to selling-out the entire nation.

  14. @Lyoba

    Welcome to Isaac Brock, and thanks for posting about the FT article. I should subscribe I suppose. I do notice that James Shotter in Vevey, the author has this story wrong. This signed IGA based upon model 2, is not the automatic information model that he says… That would be model 1. I would expect better out of The Financial Times.

    Switzerland and the US have signed a tax deal that means Swiss banks will have to automatically provide information about the offshore assets of American citizens.

    Surprise of surprises, I was able to post a comment, so I said…

    While an IGA was signed, it was not the automatic model I, like the UK signed. It is the Model 2, which requires group requests from the US. It is NOT the automatic model you think it is….

    “Information will not be transferred automatically in the absence of consent, and instead will be exchanged only on the basis of the administrative assistance clause in the double taxation agreement.”

    Surprised, that a reputable financial New organization would get something so fundamental wrong, or maybe that is a detail you didn’t think important.

    Reuters, did a better job of reporting this story although they had some segments wrong too. Probably the best reporting, ie, the most accurate, is GenevaLunch.com. Google: US-Switzerland sign controversial Fatca agreement (update)

    Also note, because your readers probably don’t understand this:. ” Bern says in a statement issued after the signing, noting that the agreement must be submitted to parliament for approval. It is also subject to an optional referendum.”

    So, this unilateral one way FATCA cram down is not done yet. It isn’t over until the FATca Lady sings.

  15. @Jane Mow

    Just wanted to acknowledge and thank you for commenting. We always welcome new voices here.
    Cheers

  16. @Just Me: have commented and (clumsily, I guess) tried to up the stakes a bit… Tell the Swiss that this will cost them money and next thing you know, there’ll be a referendum scheduled!

  17. @Lyoba…
    Not so clumsily at all. Good comment! I like how you concluded it…

    All you Swiss nationals out there: want to pay higher banking fees? Or God forbid that you’re a “Doppelbürger” (dual national) by some tenuous twist of fate!!

    Or there’s an optional referendum…

    Well done! 🙂

  18. @Just Me @Lyoba Nay, this must be a mandatory referendum. Read Art 140, 141 CFS. Because FATCA violates constitutional protections, we must have a mandatory referendum with the neccesary constitutional modifications submitted to the people for their final decision.

  19. @Jefferson: let’s hope someone with a bit of political clout will pick up the referendum ball and run with it!

  20. @Lyoba Don’t sit and wait for the politicians to wake up and pull their heads out of their asses. Art 58, 59 CFS commands all Swiss men to action in defense of the Constitution and the homeland. Mobilize now. Switzerland has just been invaded. The Federal Council is in open rebellion against the Constitution and the Swiss Sovereign People. Stand up and tell the US to fuck off. Even Hitler didn’t dare invade us. TO ARMS CITIZENS! FORM YOUR BATALLIONS!!

  21. General Guisan, General Dufour, if only you could come back. We need you. Not pussies like Ueli Maurer.

  23. well, if you get a real protest going, it would be fun to come down and join. I’ll wear my USPerson star T-shirt

  25. That Accounting Today story bugged me. Michael Cohen, in the past has done better, but he was lazy this time, and just re-ran the Treasury Press Release. I put up this comment…

    Michael,

    Why start out with the “Bi-lateral” Canard? Please, please don’t just be a scribe for the IRS. Some of us know this is just a repeat of the Treasury press release, but not all your readers do. Be a little more transparent in what you write, please. 🙂

    Just because the Treasury uses these words in their Press Release, does not make it that! At a minimum you could have used the “so called” bi-lateral preface, or said, “Bi-lateral as characterized by Treasury.”

    This is hardly bi-lateral when you are signing up for a one way cram down deal under a threat. Let’s not continue the charade for the IRS, shall we? We don’t need you to be their co-enabler messenger.

    When the stick is greater than the carrot, then we should call it what it is. An Extortion agreement, where one party totally capitulates to the other and signs away their rights.

    Other nicer terms would be a ‘Un-ilateral Agreement’ requiring one party to sign as a capitulator, as the Swiss get nothing in return from the Model 2 IGA, Or, we could call it exactly what it is, a “Tax Treaty” over ride, although, now that I think about it that Swiss Tax Treaty was filibustered by Rand Paul last session, so I should look into the status of this.

    Do note, that this agreement still has to be approved by Parliament and possibly by an optional referendum, so let’s not celebrate until the FATca Lady signs.

    Finally, will this agreement come to the U.S. Senate for and “Advise and Consent” vote. No, as the Treasury is fashioning these “so-called” bi-lateral FATCA IGAs as a Competent Authority (CA)Agreements and so contends that no further review by Congress is required. They know it would be filibustered, again, so cleverly figure out ways around Congress.

    The FATCAnatics are on a mission, and to hell with the Democratic, or so it would seem. At least the legislators in Switzerland still get an opportunity to vote and maybe even the people if there is a referendum. That is more than what you get in America.

    For a better view on the subject, rather than just a Treasury press release, might I recommend GenevaLunch.com Google the headline: “US-Switzerland sign controversial Fatca agreement (update)”

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