On Feb. 14, 2013, the United States and Switzerland signed an intergovernmental agreement (IGA) setting out their collective approach to implementing the Foreign Account Tax Compliance Act (FATCA).
The IGA largely follows the Model II template that the Treasury released in November, though there are some important deviations, reflecting the delicate nature of the negotiations between the two countries. The most notable omission is the commitment, contained in article 5 of the Model II template, to work with other countries to develop a common model for automatic information exchange. The IGA also extends the deadline for the Swiss government to respond to an information request before the account in question is declared recalcitrant.
There are several important additions to the Model II template as well. The Swiss IGA contains an enabling clause stating that Swiss financial institutions that enter into a foreign financial institution (FFI) agreement with the Internal Revenue Service or register with the IRS as deemed-compliant FFIs are authorized, and therefore, not liable to any penalty according to article 271 of the Swiss Criminal Code. Furthermore, the IGA exceeds the model template by providing a yearly deadline for when Swiss financial institutions must report to the IRS the aggregate number and aggregate value of all non-consenting U.S. accounts (no later than Jan. 31 of the year following the year to which the information relates). The IGA also shortens the deadline for when Swiss financial institutions must report the number of non-consenting nonparticipating financial institutions to which foreign reportable accounts were paid during the year, and the aggregate value of those payments from March 15 of the following year to Jan. 31.
It should be noted, however, that this agreement is currently blocked from going into full effect. Paragraph 1 of Article 5 of the agreement provides that U.S. group requests to the Swiss competent authority for information on non-consenting U.S. accounts and foreign reportable amounts paid to non-consenting non-participating financial institutions must be made under article 26 of the Swiss-U.S. tax treaty. It further mandates that "such requests shall not be made prior to the entry into force of the [2009] Protocol and shall apply to information for the time period beginning on or after entry into force of this Agreement." Unfortunately, the 2009 Protocol is one of a number of U.S. treaty agreements that’s currently stalled due to the hold created by Sen. Rand Paul, R-KY. Until that hold is lifted, the IGA can’t be fully implemented.