The Swiss House of Representatives on Monday voted in favour of allowing Swiss banks to cooperate with US tax authorities under US legislation known as the Foreign Account Tax Compliance Act (FATCA). The Senate had approved the deal in the summer.
The members of the House of Representatives approved the divisive bill by 112 votes to 51, with 21 abstentions. Implementation of the act was passed by 113 to 50 votes with 20 abstentions. Swiss banks will now almost automatically provide information about US citizens who hold Swiss accounts.
Finance Minister Eveline Widmer-Schlumpf reiterated today that the agreement provided the necessary legal framework for the banks to settle investigations into tax evasion and thus avoid further damaging the reputation of the Swiss financial centre.
«For Swiss banks it’s not a question of whether FATCA will come, but how FATCA will be implemented,» Widmer-Schlumpf explained.
Recent months have seen an unprecedented ramp-up of international efforts to put an end to banking secrecy. The Organisation for Economic Co-operation and Development (OECD) has increased its pressure. Only last week OECD tax director Pascal Saint-Amans said that Switzerland remains a tax haven because it lacks the legal framework to exchange information.
Colonial act
It had been expected that FATCA would meet more opposition from the right-wing Swiss People’s Party, which is concerned that the «colonial contract» would compromise Switzerland’s sovereignty. «Switzerland must not abandon its sovereignty. A proud state would never accept such a deal,» said Christoph Blocher during debate in the House. «We cannot accept that US law shall apply in Switzerland.»
Many representatives expressed their concern about a lack of reciprocity. Christian Democrat Lucrezia Meier-Schatz criticised the US’s «imperialism». But at the end of the day, most representatives realised that Switzerland cannot flinch because a rejection would put Swiss banks at a disadvantage when they compete against other financial companies in the US.
In the end, the bill was accepted by a clear margin, because the members of parliament feared that Swiss banks would be effectively excluded from the US capital markets if they did not accept FATCA. Most representatives acknowledged that FATCA is a reality, whether Switzerland likes it or not.
«Those who are still opposed to an automatic exchange of information are sitting on the wrong train,» said Susanne Leutenegger Oberholzer of the Social Democrats. «Switzerland simply hasn’t recognized the signs of the times.»
Model 2
Switzerland has opted for a version of the bill which is also favoured by Japan. This so-called «model 2» better protects privacy and sovereignty, Widmer-Schlumpf said. Swiss banks will have to report accounts belonging to US taxpayers with more than $50,000, but client data will only be exchanged once the US authorities have requested administrative assistance.
Most European Union countries have accepted another type of deal, in which information is exchanged automatically, the so-called «model 1». Most Swiss representatives expect that this automatic exchange will eventually become the international standard.
The Swiss Senate will again vote on FATCA in the autumn session. The vote, however, is considered to be a formality, because the more business-friendly Senate had approved the bill by 24 to 15 votes in June, following more than 20 hours of debate.
The FATCA bill will be implemented in stages starting in July 2014, Widmer-Schlumpf said. That is later than previously planned, mainly because the United States needs more time.