Bloomberg News reports that the Swiss government has initialed an agreement with the United States (US) which helps American authorities crack down on wealthy citizens evading taxes in their home country.

The US adopted Foreign Account Tax Compliance Act (FATCA) in March 2010 in order to identify US taxpayers who are hiding assets overseas in order to avoid U.S. income tax. FATCA requires foreign financial institutions to agree to notify US authorities of accounts held by US citizens. FATCA is scheduled to phase in beginning in 2014. 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, which was agreed upon in Washington and must still be officially signed and approved by parliament, intends to simplify the implementation of the FATCA, according to a statement by Anne Cesard, a spokesperson for the Swiss State Secretariat for International Financial Matters.

According to the pact, American taxpayers holding accounts with Swiss financial institutions will be reported to the US tax authorities either with their consent or through administrative cooperation.

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 currently under negotiation.

According to the Swiss, the December 3, 2012 agreement, excludes institutions providing social security, private pensions and indemnity and property insurance from FATCA.

Institutions which fail to comply with FATCA may be subjected to heightened scrutiny by the Internal Revenue Service (IRS), as well as penalties of up to 40 per cent of the amount in question. FATCA is expected to raise $8 billion in tax revenue over the next ten years.