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Switzerland is moving towards FATCA implementation

On June 21, the Swiss Federal Department of Finance announced that the US and Switzerland will enter into an intergovernmental agreement. This agreement is different than the one published e.g. with Germany or France to the extent that all FFI’s need to enter directly into an agreement with the IRS and there will be no automatic information exchange. However, the US will be able to use the “administrative assistance” (Amtshilfe) in order to get the names of the recalcitrant account holders.

Switzerland is moving towards FATCA implementation
The following key elements have been agreed according to yesterday’s publication:
- All FFI within Switzerland will need to become FATCA compliant
- The reporting to the IRS of the account holder information will be allowed (waive art. 271 of the Swiss penal code)
- There will be no withholding requirements for recalcitrant account holder

In return:
- The US will allow to specifically define e.g. the local FFI rules for Switzerland (“deemed compliant status”)
- No withholding applies to FFI’s within Switzerland (as every Swiss financial institution will be compliant) and for recalcitrant account holder
- Certain relaxation for the FATCA implementation

Overall assessment
By this agreement the IRS is now a step closer to achieve their primary objective. They are interested in the names of the account holders and not in getting proceeds from withholding. We therefore consider this being a step towards implementation of FATCA in Switzerland. It somehow creates additional uncertainty, especially to the extent that certain relaxation for the FATCA implementation will be considered for Switzerland. It is however unclear what these exactly are.

Furthermore, it is now clearer that it will be dealt with the reporting and withholding restrictions around art. 271 of the Swiss penal code. Under the assumption that anyway all Swiss FFI’s are FATCA compliant, they will not face the withholding problem.

Implication for collective investments schemes
We believe that with the announcement of certain relaxation of the FATCA implementation, more counterparties, that are resident in Switzerland or another country that has or enters into a similar agreement with the IRS, will be considered FATCA compliant. That will certainly help in order to facilitate implementation of the requirements and ease the pressure on the value chains of the products (although a thorough value chain assessment is still required).

Implications for insurance companies
The issue around exiting recalcitrant account holders (i.e. a cancelation of a life insurance policy is not possible) seems now to be addressed. However, Insurance companies might now be faced with group requests under the “administrative assistance” (Amtshilfe) and need to prepare for that accordingly.
Implications for banks

Similar to the insurance companies neither an exit of a recalcitrant account holder nor the withholding on proceeds is anymore required. However, Banks will as well potentially face more group requests under the “administrative assistance”. The introduction of a layer of countries that are now entering into intergovernmental agreements will add another category of FFI’s, which in practice will increase the complexity for implementation. Currently, we do not believe that a large number of banks will profit from the new categories (smaller, local FFI’s) as the terms “small” and “local” as per proposed FATCA regulation is defined as USD 175 million total assets and 98% of the accounts need to be domestic. As a result the ongoing impact analysis projects of FATCA will not be significantly affected.

Michael Schneebeli
Partner, Audit Financial Services

Mercredi 18 Juillet 2012

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