GENEVA - The Swiss government said on Thursday it had signed a controversial deal with the United States requiring all Swiss banks to report the holdings of their US clients to US tax authorities.
The agreement, which was initialled in Washington late last year, aims to simplify Switzerland's implementation of the US Foreign Account Tax Compliance Act (FATCA), a source of dispute between the two countries since it was announced in March 2010.
The deal was signed in Bern by State Secretary Michael Ambuehl, in charge of financial and taxation issues, and US ambassador Donald Beyer, but still needs to pass through the Swiss parliament and could be subject to a popular referendum, the government said in a statement.
It stressed though the importance of the deal going into effect when the United States begins phasing in FATCA on January 1, 2014 to avoid penalising Swiss banks on the US market.
And it said it planned to fast-track the agreement through the usually slow parliamentary process.
Swiss Finance Minister Evaline Widmer-Schlumpf told Swiss media on Wednesday that the country had no other choice but to sign the deal, pointing out that not doing so would be detrimental to Swiss financial institutions active on US capital markets.
The government stressed that regardless of whether it signed the deal or not, Swiss institutions would not be able to circumvent the US rules, but that with the agreement in place the implementation would be simplified.
Switzerland is one of seven countries which have so far agreed to comply with FATCA, which aims to ensure that all US citizens can be taxed by the Internal Revenue Service on their income and assets worldwide.
The FATCA law is controversial in many countries because it requires banks to reveal information about their clients.
Until now, tax agreements have only provided for the exchange of information "on demand," meaning a country would already suspect possible tax evasion before requesting the information.
FATCA meanwhile requires foreign financial institutions to report all assets in accounts held by US citizens to the IRS.
In anticipation of these rules and the workload they will entail, critics say Swiss banks have already begun actively eliminating American clients.
In light of this problem and to avoid trampling on Switzerland's cherished banking secrecy rules, a number of exceptions have meanwhile been negotiated under the deal signed in Bern.
Social security funds, private pension funds and property and casualty insurers have been excluded from the Swiss FATCA filing requirements and bank compliance has been simplified, Bern said.
The new deal also ensures that information will not be transferred automatically without the client's consent, although FATCA then requires banks to charge a 30-per cent withholding tax on the US client's assets.
If a client refuses consent, information about their holdings can still be exchanged, but then only through group requests under an existing double taxation agreement between Switzerland and the United States, Bern said.