The IRS expects all US tax dodgers to come clean
(Keystone)
The American FATCA
legislation comes into effect on July 1. The world’s banks will be
required to supply Washington with regular updates on customers liable
to pay US tax. This means the end of Switzerland’s much-vaunted
tradition of banking secrecy.
Swiss banks and asset
managers are gearing up to implement the FATCA (Foreign Account Tax
Compliance Act) rules, by which the US government is to get all
information on capital held anywhere in the world by people liable to
pay American taxes.
How FATCA works
In an initial phase, only
deposits over a certain limit, such as $50,000 for personal accounts,
will be reported. Later all capital will have to be declared.
Steep costs
Unlike most other
European countries, Switzerland opted for a “model 2” agreement, whereby
it is not the Swiss tax man but the banks themselves that are to supply
the data to Washington.
To do this, the industry players
first need to identify all those customers subject to American tax: this
means American citizens, of course, but also Green Card holders, and
other individuals or companies legally domiciled in the US.
This
was a huge operation for the Swiss financial industry to mount.
“Implementing FATCA is not so crucial for other countries whose
financial institutions have few American customers or who have already
been supplying data. Swiss banks, however, manage the biggest slice of
transnational wealth in world terms”, says Mario Tuor, communications
manager with the Swiss government’s State Secretariat for International Financial Matters (SIF).
“It’s a very complex process,” notes Thomas Sutter, spokesman for the Swiss Bankers Association
(SBA), which is looking at costs of CHF200-300 million for the nation’s
banks. “We can’t just push a button to find all the customers liable
for American tax. We have to identify them, track them down, explain to
them what is involved and ask them if they are willing to have their
data transmitted”.
Powerful sanctions
Customers
may indeed refuse to let their data be handed over – but this will not
be enough for them to escape the long arm of the Internal Revenue Service
(IRS), the American tax collector. In such cases, banks will still need
to tell Washington the number and total amount of undeclared assets.
Bern has to respond with information on all cases
within eight months – so gone are the days in which information was
released in dribs and drabs over a period of years. “Administrative
assistance will be provided, if there is any evidence of an infraction.
If the customer is not willing to oblige, he is admitting that he is not
at rights with the American tax system,” points out Patrick Dorner,
director of the
Swiss Association of Asset Managers (SAAM).
“With
FATCA, there is practically no more banking secrecy for customers
liable for American tax,” admits Sutter. The Swiss government and
parliament have had to accept this fact.
FATCA comes with a
toolbox of powerful sanctions against banks or customers unwilling to
comply, starting with a 30% withholding on all payments of dividends,
interest or other revenue from American sources. Financial institutions
also are at risk of being locked out of the world interbank market.
Required to register
All
wealth management firms, trust companies, insurers and even major
industries which have significant financial activities have to get with
the American programme. All these companies are required to register
with the IRS to avoid being labelled as “uncooperative”.
To
apply the FATCA legislation, the American Treasury Department has
proposed to other countries two kinds of agreement, which provide
mechanisms to relieve some of the administrative burdens.
On the
IRS website there are already 4,000 Swiss companies listed. “For months
we have been mounting a big information campaign to tell all the asset
managers that they have to register, even if they have no American
customers or investments," says Dorner. "If an asset manager declines to
register, banks won’t work with them. The banks can’t take the risk of
working with managers not in conformity with FATCA," he explains.
Two kinds of FATCA
FINMA,
the Swiss government’s financial markets watchdog, has issued a warning
to all financial institutions calling on them to fulfil their
obligations under the American regulations and in particular “not to
engage in any action to get around FATCA”.
The new Swiss
federal legislation on the FATCA accord, which takes effect on June 30,
provides for fines up to CHF250,000 where there is intentional violation
of the regulations, including that of having to register with the IRS.
Logical change
It’s
a spectacular paradigm shift for this country. Until a few years ago,
sanctions fell on those who violated banking secrecy and cooperated with
foreign governments. Now they fall on whoever does not go along with
shipping data to Washington.
Already the Swiss government
wants to go further. By this autumn it intends to start negotiations
with the US with a view to switching from a “model 2” FATCA accord to a
“model 1”, which would essentially mean automatic exchange of
information between the tax authorities.
This change is considered
“logical” by the associations of bankers and assets managers. “When
talk of FATCA started, automatic exchange of information was still a
taboo topic in Switzerland. But we will soon have the OECD international
standards, which Switzerland will have to conform to. So the best thing
is to adopt this model now for our dealings with the US,” says Dorner.
(Keystone)
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