The U.S. crackdown on tax evasion continues. On February 14, 2013, the U.S. Treasury Department announced that Switzerland and the United States have signed an agreement to make Swiss banks disclose more information about U.S. account holders.
The agreement is the latest in a series of pacts between the United States and other countries, designed to carry out the Foreign Account Tax Compliance Act (FATCA) enacted in 2010.
FATCA requires foreign financial institutions to report to the Internal Revenue Service (IRS) about Americans’ offshore accounts worth more than $50,000. FATCA was enacted after a Swiss banking scandal revealed that U.S. taxpayers were hiding billions of dollars and assets in offshore accounts in order to avoid paying taxes to the IRS.
“Today’s announcement marks a significant step forward in our efforts to work collaboratively to combat offshore tax evasion,” said Acting Secretary of the Treasury, Neal Wolin.
“We are pleased that Switzerland has signed a bilateral agreement with us, and we look forward to quickly concluding agreements based on this model with other jurisdictions,” said Mr. Wolin in a statement from Treasury, which oversees the IRS.
Beginning in 2014, FATCA imposes steep penalties on financial institutions that do not comply with the law’s requirements. Banks and other financial institutions failing to comply with the law would essentially be frozen out of U.S. financial markets.
Swiss financial institutions will be required to exercise due diligence, reporting and withholding not only with previously identified accounts, but also with new accounts. The agreement provides in part:
With respect to New Accounts identified as U.S. Accounts, [Swiss financial institutions must] obtain from each Account Holder a consent to report consistent with the requirements of an FFI Agreement as a condition of account opening.
The Swiss Bankers Association released a statement saying it welcomes the FATCA deal but remains critical of compliance burdens and administrative burdens of the U.S. law.
To read the Treasury’s announcement click here.
To read the agreement, click here.