The USA and Switzerland are moving to mutual automatic exchange

23.11.2023 Switzerland and the United States have revised their agreement on the implementation of the American Foreign Account Taxation Act (FATCA).

FATCA is a unilateral set of US regulations that have been applied in all countries of the world since 2014. According to it, foreign financial institutions (FFI) are required to disclose information about the accounts of US citizens to the US Internal Revenue Service or pay a large fine to the US government. Due to the administrative burden placed on FFI, most governments have entered into agreements with the United States to facilitate the transfer of data. These intergovernmental agreements, as a rule, belong to one of two types – "Model 1" or "Model 2".

The initial agreement between Switzerland and the United States, was concluded in June 2014, is of the "Model 2" type. According to it, Swiss banks must register directly with the IRS and provide it with full information about all accounts of American customers who have agreed to such an agreement. In the absence of customer consent, the bank will provide the IRS with only unidentifiable aggregated information about their accounts, after which the IRS will request complete information about these individuals by sending requests for tax assistance to the Swiss government through the usual channels.

Switzerland adopted this approach because its bank secrecy laws did not allow it to sign a "Model 1" agreement, according to which its banks would have to transfer all data on Americans' accounts to the Swiss government for automatic forwarding to the tax service. At the same time, the agreement signed by Switzerland is non-reciprocal, so the American authorities are not obliged to inform the Swiss tax authorities about Swiss-owned bank accounts in the United States.

However, Switzerland has previously been announced its intention to switch to a "Model 1" agreement. In 2014, the Swiss Federal Council approved a draft mandate for negotiations with the United States on the transition to automatic information exchange. In September 2019, the double taxation avoidance agreement between Switzerland and the United States was amended to allow filing "group requests" under FATCA, which facilitated the transfer of data on accounts whose owners refused to consent to the disclosure of FATCA information.

The negotiations were finally concluded on November 13, 2023, and preparations are currently underway to sign an agreement, as announced by the Swiss State Secretariat for International Finance. The new agreement follows the "Model 1", according to which Switzerland will now have the right to receive data on Swiss-owned accounts from the US Internal Revenue Service.

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