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February 14, 2013: Switzerland Signs First Model II Intergovernmental Agreement

Foreign Account Tax Compliance Act (FATCA)


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Switzerland and the United States sign Intergovernmental Agreement

On February 14, 2013, Switzerland and the United States signed an Intergovernmental Agreement (“IGA”) to improve international tax compliance with respect to FATCA. This is the first Model II IGA agreement to be signed with the U.S. and brings the total number of signed IGAs to five.

Unlike the Model I IGA, the Swiss Model II IGA provides for reporting directly to the IRS, as opposed to reporting to the local country’s tax authority which will then report to the IRS. Additionally, the Model II IGAs do not include reciprocal reporting responsibility for the U.S., which the reciprocal version of the Model I IGA envisions. As noted in the final regulations and adopted in the Swiss Model II IGA, FFIs within the Model II jurisdiction will be required and directed by the local government to register as participating FFIs with the U.S. (unless exempted or certified deemed-compliant). The rules of the FFI Agreement will generally apply to such participating FFIs, unless modified by the rules outlined in the Model II IGA. Interestingly, participating FFIs have the option to either apply the due diligence rules in the final regulations or those contained within Annex I of the Swiss Model II IGA, although they must continue to use the same set of rules once elected.

One surprising addition in the Swiss Model II IGA is a category in Annex II for Swiss Investment Advisors as a deemed-compliant FFI. This category is for entities that render investment advice to and act on behalf of customers. An investment advisory entity would generally not qualify for a deemed-compliant category in the other signed IGAs to date or in the final regulations.

Similar to the other IGAs, Annex II also includes a list of entities treated as exempt beneficial owners including government entities, the central bank, and certain retirement funds; deemed-compliant FFI categories for local FFIs, collective investment vehicles, non-profits, and condominium owners associations (in addition to the investment advisor category); and a list of exempt products that includes certain retirement or tax favored accounts or products.

This latest agreement further bolsters the U.S.’s position to address the global FATCA compliance problem using the IGA methodology. In addition to Switzerland, Japan is also expected to sign a Model II IGA and has been in active talks with the U.S. to conclude an agreement. With the release of the Final Regulations last month, we expect that many more countries will begin to actively enter into IGA agreements in the near future.

Full article and U.S. Department of the Treasury’s announcement from February 2013 are available for download. Read more about additional Memorandum of Understanding from June 7, 2013. For more information please contact a FATCA Leader or click here.

 

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