Advancing a US crackdown on tax evasion by Americans, the US Department of the Treasury said on Thursday that Switzerland and the US have signed a pact to make Swiss banks disclose more information about US account holders.
The agreement is the latest in a series designed to carry out the Foreign Account Tax Compliance Act, or FATCA, enacted in 2010.
The law requires foreign financial institutions to tell the US Internal Revenue Service (IRS) about Americans’ offshore accounts worth more than US$50,000.
FATCA was enacted after a Swiss banking scandal showed US taxpayers hid millions of dollars overseas.
The pact announced on Thursday, known as an intergovernmental agreement (IGA), needs to be ratified by the Swiss parliament. It does not need approval by the US Senate.
The deal has been close to completion since December last year.
FATCA imposes steep penalties beginning next year on financial institutions that do not comply with the law. Banks and other financial institutions failing to comply could be frozen out of US financial markets.
“We are pleased that Switzerland has signed a bilateral agreement with us, and we look forward to quickly concluding agreements based on this model with other jurisdictions,” US acting Secretary of the Treasury Neal Wolin said in a statement.
The Swiss Bankers Association said it welcomed the FATCA deal, but remains critical of the compliance and administrative burdens of the US law.
In signing the pact, Switzerland joins the UK, Denmark, Ireland and Mexico as countries that have finished FATCA IGAs with the US.
The US Treasury has pursued two different IGA models.
The Swiss deal is the first “model two” agreement signed. It will require Swiss financial institutions to provide US account holder information directly to the IRS.
The four other IGAs concluded so far are “model one” agreements, which allow financial institutions to comply with FATCA by channeling US account-holder information through their national tax authorities to the IRS.
Unlike some other pacts, the Swiss deal is not reciprocal, meaning the IRS will not provide Switzerland with information about Swiss citizens’ accounts in US banks.
The pact excludes Swiss social security, pension funds and some insurers from FATCA.
The US Treasury is working with more than 50 countries on deals, but negotiations have not progressed with key trading partners Canada and China.