As a mean to help counter tax evasion from the United States, the United States Department of Treasury (the “Treasury”) and the United States Internal Revenue Service (the “IRS”) have worked together to introduce, in 2010, the Foreign Account Tax Compliance Act (“FATCA”), which came into effect on 30 June 2014.
Associated inter-governmental agreements (“IGAs”) were entered into by the United States with other jurisdictions concerning the implementation of FATCA, which results in the FATCA legislation to become part of these jurisdictions’ local laws. On 14 February 2013, Switzerland and the United States (the “U.S.”) signed such an IGA, which came into effect on 30 June 2014.
The focus of FATCA is the reporting of information on a cross-border basis from a non-U.S. bank directly to the IRS (Model 2 IGA) or indirectly via their local tax authorities (Model 1 IGA) with regard to all non-U.S. accounts held by U.S. Persons, in order to prevent them from using non-U.S. financial institutions and other financial organisations to avoid U.S. taxation on their incomes and assets.
FATCA sets out strict procedures which must be followed by non-U.S. financial institutions in order to gather, and where necessary report directly or indirectly, this tax information to the IRS.
In Switzerland, a direct reporting is made by financial institutions as Switzerland signed a Model 2 IGA.