Bern and Rome: speeding up new tax talks with Italy
Derivatives, financial markets infrastructure to see new laws
Under the mattress, in the mug or in a Swiss bank: the IRS wants to know what assets US citizens have outside their country
BERN, SWITZERLAND – Switzerland will “soon” begin negotiations with the United States over a framework agreement for simplified implementation of the American Fatca rules.
Fatca (Foreign Account Tax Compliance Act ) is a US law created in 2010 that calls for FFIs, “foreign financial institutions”, to fall in line by 2013 and provide information on clients who are US citizens: it will require all non-US financial institutions to report American clients’ assets.
The announcement by the Federal Council, or cabinet, that it will take up the Fatca mandate approved by parliamentary commissions is one of a series of steps announced 29 August by Bern as part of efforts to strengthen the Swiss financial centre, to ensure that the country’s banks remain highly competitive and safe.
Several other countries have completed or undertaken negotiations with the US to ease Fatca implementation by their banks, notably the European Union’s largest economies (France, Germany, Italy, Spain and the UK), which in February signed the “Model Intergovernmental Agreement for Implementing the Foreign Account Tax Compliance Act to Improve Offshore Tax Compliance and Reduce Burden” (text, published by the US in July).
Limiting damage to world financial systems by OTC derivatives
“International standards in the areas of OTC (over the counter) derivatives trading and financial market infrastructure are currently being implemented in national legislation in several countries,” Bern said Wednesday. “The EU and the United States in particular are relatively far advanced here.”
Switzerland must, argues the council, “implement the G20 obligations and the Financial Stability Board recommendations on OTC derivatives trading as fully as possible and at the same time as other financial centres. In addition, regulation in the area of financial market infrastructure has to be adapted to international standards” which have been revised since the financial crisis highlighted that the lack of transparency on the markets . . . can threaten the stability of the entire financial system due to their strong international integration and the heavy trading volume and default risks”, the Federal Council said in a statement issued Wednesday.
Negotiations with Italy to look for deal in 5 areas
The Federal Council also announced that it is taking on a mandate for tax and financial bilateral negotiations with Italy, agreed to by the two countries in principle in May. A pilot group was set up at that point to begin drafting proposals.
The two finance ministers, Evelyn Widmer-Schlumpf for Switzerland (she is also the Swiss president for 2012) and Mario Monti for Italy, met in June and again 17 August to advance the discussions. At their last meeting, the council said today, they agreed to “advance rapidly” the negotiations and to ask the pilot group to present concrete proposals by the end of the autumn.
The five areas under negotiation are:
- declaring assets of Italians who are resident in Switzerland and starting to tax at source future revenues from capital
- improved access to financial markets
- revision of the double taxation agreement, possibly an arrangement that could be similar to those with Britain and Germany
- Italy’s black lists
- taxation of border workers.
Fatca: Switzerland talks comes on heels of “model agreement” signed by France, Germany, Italy, Spain, UK
Fatca and the model agreement signed with the EU’s largest economies have not been without critics, notably from the international group, Geneva-based American Citizens Abroad, and Canada, which has a large US citizen population (background from Canada’s Bankers Association).
Switzerland and the United States 21 June published a joint declaration containing key points for possible simplifications in implementing Fatca (report from GenevaLunch 22 June).
Bern says “the aim of the negotiations is to ensure an optimum framework for the Swiss financial industry with regard to the implementation of Fatca and strengthening of the financial centre strategy.”
Behind those words about the Swiss financial centre lie concerns that Swiss banks could be heavily penalized for not complying with the new US rules because of Swiss banking laws that guarantee data privacy. The joint June declaration’s key points don’t mention banking secrecy, but rather Article 271 of the Swiss Criminal Code.
Article 271 covers the criminal act of aiding and abetting a foreign government by providing information illegally. The new framework therefore theoretically protects Swiss banks from prosecution at home by allowing them to give agreed information to the US government without first passing it through the hands of the Swiss government.
But negotiations are still needed to cover how, given Swiss bank privacy laws, a bank can automatically share information with the IRS and what exactly happens when a client is “recalcitrant” and refuses to sign papers giving the bank this right.”
