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Switzerland, US Sign MOU Over FATCA Agreement


On June 7, in Washington, the United States and Switzerland signed a Memorandum of Understanding (MOU) on interpretations regarding the Foreign Account Tax Compliance Act (FATCA) intergovernmental agreement (IGA) they had signed on February 14 this year.

Within the negotiations on that FATCA agreement, both sides had agreed to set interpretations of a technical or administrative nature in a subsequent MOU, which has now been signed by Manuel Sager, the Swiss Ambassador to the United States, and Mark Mazur, the US Assistant Secretary for Tax Policy.

FATCA requires foreign financial institutions (FFIs) to register with US tax authorities and report information on accounts housing the assets of US taxpayers. Failure by an FFI to sign an agreement with the Internal Revenue Service (IRS) and disclose information would result in a requirement, from next year, to withhold 30 percent tax on US-source income.

The Swiss Government has pointed out, in particular, that the US-Swiss IGA ensures that accounts held by US persons with Swiss FFIs are only disclosed to the IRS either with the consent of the account holder or on the basis of the administrative assistance clause in the two countries' double taxation agreement.

The MOU summarizes the obligations of Swiss financial institutions and confirms the simplified self-certification process for "exempt Swiss beneficial owners" under the FATCA agreement.

It therefore contains the requirements placed on a Swiss financial institution to obtain such information regarding account holders as is necessary to determine whether the accounts held US accounts; comply with the verification and due diligence procedures as may be required by applicable US Treasury regulations; report on an annual basis the information needed; deduct and withhold from payments to recalcitrant account holders and non-participating financial institutions; and close accounts of recalcitrant account holders, subject to the terms and conditions of the IGA.

On the other hand, the MOU also confirms the arrangements for non-reporting Swiss FFIs identified as "deemed-compliant" in the IGA, largely due to their lack of business outside of Switzerland or the European Union, and exempt certain beneficial owners, such as Swiss retirement plans, investment advisers and certain collective investment vehicles.

In addition, it is stated that, if they simplify matters relative to the definitions in the IGA, Swiss FFIs can apply definitions in applicable US Treasury Regulations in lieu of corresponding definitions in the IGA, provided that such application would not frustrate the latter's purposes.