US, Swiss sign pact on tax evasion Banks complain of compliance burden

WASHINGTON, Feb 14, (Agencies): Advancing a US crackdown on tax evasion by Americans, the US Treasury Department said on Thursday Switzerland and the United States have signed a pact to make Swiss banks disclose more information about US account holders.

The agreement is the latest in a series between the United States and other countries designed to carry out the Foreign Account Tax Compliance Act, or FATCA, enacted in 2010.

The law requires foreign financial institutions to tell the US Internal Revenue Service about Americans’ offshore accounts worth more than $50,000. FATCA was enacted after a Swiss bank scandal showed US taxpayers hid millions of dollars overseas.

“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 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,” he said in a statement from Treasury, which oversees the IRS.

FATCA imposes steep penalties beginning in 2014 on financial institutions that do not comply with the its demands. Banks and other financial institutions failing to comply with the law would be frozen out of US financial markets.

The Swiss Bankers Association said on Thursday it welcomes the FATCA deal but remains critical of compliance burdens and administrative burdens of the US law.

Swiss Finance Minister Evaline Widmer-Schlumpf told Swiss media on Wednesday that the country had no other choice but to sign the deal, pointing out that not doing so would be detrimental to Swiss financial institutions active on US capital markets.

The government stressed that regardless of whether it signed the deal or not, Swiss institutions would not be able to circumvent the US rules, but that with the agreement in place the implementation would be simplified.

Switzerland is one of seven countries which have so far agreed to comply with FATCA, which aims to ensure that all US citizens can be taxed by the Internal Revenue Service on their income and assets worldwide.

The FATCA law is controversial in many countries because it requires banks to reveal information about their clients.

Until now, tax agreements have only provided for the exchange of information “on demand,” meaning a country would already suspect possible tax evasion before requesting the information.

FATCA meanwhile requires foreign financial institutions to report all assets in accounts held by US citizens to the IRS.

In anticipation of these rules and the workload they will entail, critics say Swiss banks have already begun actively eliminating American clients.

In light of this problem and to avoid trampling on Switzerland’s cherished banking secrecy rules, a number of exceptions have meanwhile been negotiated under the deal signed in Bern.
Social security funds, private pension funds and property and casualty insurers have been excluded from the Swiss FATCA filing requirements and bank compliance has been simplified, Bern said.
The new deal also ensures that information will not be transferred automatically without the client’s consent, although FATCA then requires banks to charge a 30-percent withholding tax on the US client’s assets.

If a client refuses consent, information about their holdings can still be exchanged, but then only through group requests under an existing double taxation agreement between Switzerland and the United States, Bern said.
 

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