The Swiss government has initialed an agreement with the United States which helps American authorities crack down on wealthy citizens evading taxes in their home country.
The pact, which was agreed upon in Washington and must still be officially signed, approved by parliament and allowed to proceed by the Swiss people, aims to simplify the implementation of the Foreign Account Tax Compliance Act (Fatca), according to a statement by the State Secretariat for International Financial Matters (SIF).
The text of the agreement will be made public once the treaty is officially signed.
US lawmakers adopted Fatca in March 2010 to clamp down on US citizens hiding their assets overseas. It requires foreign financial institutions to agree to notify US authorities of accounts held by US citizens. Fatca is due to be phased in from 2014. The US is the only industrialised country which requires its citizens living abroad to pay taxes.
According to the pact, Americans holding accounts with Swiss financial institutions will be reported to the US tax authorities either with their consent or through administrative cooperation, SIF said in its release.
If the account holder does not consent, information is not exchanged automatically, but only on the basis of the administrative assistance provisions in the double taxation treaty, the secretariat explained. The Swiss-US tax treaty is still under negotiation.
Under Fatca, financial institutions must hold back 30 per cent of all funds paid into undeclared accounts from the US for American tax authorities.
The agreement reached in Washington on Monday excludes institutions providing social security, private pensions and indemnity and property insurance from Fatca, according to SIF.
Institutional costs associated with identifying US clients will be “reasonable” under the initialed pact.
Institutions which refuse or fail to comply with Fatca will face bills for the taxes due, a penalty of 40 per cent of the amount in question as well as heightened scrutiny by the US Internal Revenue Service (IRS). Fatca is expected to raise $8 billion (SFr7.4 billion) in extra tax revenue over the next ten years.
The Foreign Account Tax Compliance Act (FATCA) was passed in the US in 2010 as part of the Hiring Incentives to Restore Employment Act.
Fatca was designed to close loopholes in existing tax compliancy regulations, known as the Qualified Intermediary (QI) accord.
The law obliges foreign firms to report offshore accounts and security trades by US clients that amount to more than $50,000 (SFr47,942).
If they fail to do so, they will be hit with a 30% withholding tax.
The US expects the new legislation to net $8 billion inside ten years.
The estimated annual cost to each foreign bank to implement the law has been put at $100 million.
The US plans to bring Fatca into force in stages, starting as early as next year.