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With the enactment of the Foreign Account Tax Compliance Act (FATCA) on 18 March 2010, the United States wishes to ensure that all accounts held abroad by US taxpayers are actually taxed. FATCA basically requires foreign financial institutions (FFIs) to enter into a FATCA agreement with the Internal Revenue Service that imposes reporting requirements on them regarding US accounts. A financial institution has to obtain the client's consent in order to submit such reports. A client who does not consent is considered recalcitrant. In the case of such clients, financial institutions have to withhold 30% on all payments coming from the United States.
The implementation of these provisions is generating high costs and legal uncertainty worldwide. Switzerland's refusal to implement FATCA would cause major disadvantages for the financial centre. The prohibitive withholding tax of 30% on all payments from the United States and the likely consequence that foreign financial institutions would terminate their business relationships with Swiss financial institutions in the medium term would result in exclusion from the world's largest capital market.
The key points of the declaration signed today are based on a model developed by Switzerland and Japan in collaboration with the United States that accommodates the needs of both countries. Unlike the implementation model of five large EU countries (Germany, France, Italy, Spain, United Kingdom), the exchange of information is to take place directly between the financial institutions and the Internal Revenue Service rather than via centralised government data gathering.
Simplifications could be provided for within the scope of an intergovernmental agreement. The following facilitation measures are sought under the joint declaration:
Negotiations between Switzerland and the United States on the resolution of outstanding tax issues concerning the past are still ongoing. It is hoped that an agreement will be reached by year-end.