Treasury Announces Alternative Model for FATCA Implementaion with Switzerland (6/23/12)

Treasury has announced that it has reached an agreement with Switzerland for FATCA reporting with more robust exchange of information under the U.S. / Swiss Double Tax Treaty.  A similar agreement was reached with Japan, but I focus here on the agreement with Switzerland.  

The announcement, tiltled Department of Treasury Press Release, Treasury, Switzerland Agree to Pursue Framework for Cooperation for Implementing FATCA (6/12/12) is here.  The U.S. / Swiss Double Tax Treaty and Treasury Technical Explanation may be accessed here (the Exchange of Information provision is Article 26).  Here are the critical portions of the release.

The framework contemplated in the joint statement issued today represents a second model for an intergovernmental approach to improving tax compliance and implementing FATCA (Model II).   Model II establishes a framework of direct reporting by foreign financial institutions to the Internal Revenue Service (IRS), supplemented by information exchanged between the Swiss government and the United States government upon request. 

Previously, the Treasury Department jointly issued a statement with France, Germany, Italy, Spain and the United Kingdom expressing mutual intent to pursue a government-to-government framework for implementing FATCA.  The model contemplated in the prior joint statement (Model I)  differs from the model announced today in that it contemplates reporting by foreign financial institutions (FFIs) to  their respective governments, followed by the automatic exchange of this information with the United States.  Treasury, in consultation with the jurisdictions participating in the joint statement issued in February, has been developing a model agreement that will serve as the basis for bilateral agreements with countries interested in adopting the intergovernmental framework contemplated in Model I and aims to publish this model soon. 

Both intergovernmental models for implementing FATCA represent an important step toward addressing legal impediments to financial institutions’ ability to comply with the regulations.
The frameworks contemplated in the joint statements will serve as alternative models for the United States’ work with other countries, as Treasury officials continue to engage in discussions with foreign governments about the effective and efficient implementation of FATCA by their financial institutions.

Some view this as a breakthrough with Switzerland in light of the Government's juggernaut about Switzerland's past sins. See Michael Cohn, U.S. Strikes FATCA Deals with Switzerland and Japan (6/21/12), here.  Key quotes from that article are:

The statement with Switzerland represents a breakthrough as the U.S. Justice Department and the IRS have pursued several Swiss banks, such as UBS and Credit Suisse, that encouraged U.S. citizens to open secret bank accounts.

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Dr. Tony Wicks, director of AML Solutions at NICE Actimize, a provider of financial crime, risk and compliance software, noted that the Swiss agreement represents a dramatic change in behavior for Switzerland. 

“The Swiss Department of Finance has said that it should reach a resolution on outstanding tax issues with the US by the end of the year,” he said. “This, coupled with the announcement of an IGA (inter-governmental agreement) on FATCA would demonstrate that the walls of banking secrecy are starting to crumble. Banking secrecy has been Switzerland's life-blood. It's a fundamental change that will mean that some Swiss institutions will need to re-consider their business models and compete on an even keel with international counterparts. Switzerland was the kingpin, and with this change, we'll see other countries fall in place with IGAs. If not, banks in those countries will be disadvantaged in terms of implementing FATCA. 

“The change underlines the fact that tax transparency is of primary concern to all governments and that FATCA is here to stay,” Wicks added. “There will be quite a bit of vacation working this summer as institutions try to get programs on track to meet the 2013 deadlines, especially pending the release of final regulation from the IRS.” 

Why the different reporting approach for Switzerland? “It looks like Swiss banks will report details of accounts directly to the IRS, rather than through their local government, the FATCA partner arrangement defined in the regulation,” said Wicks “This has benefits. It means that they will have certainty associated with reporting requirements once the final regulation is released rather than having to wait for local government agreement and clarifications. Institutions need certainty to get on with their FATCA programs. System change takes time, and deadlines in 2013 are not that far away."