The Swiss authorities seek modifications in the US FATCA regulations.
Hey there! Let's dive into the nitty-gritty of FATCA, the Foreign Account Tax Compliance Act.
What the heck is FATCA?
FATCA, introduced in 2014 by the US government, is an act that aims to enforce Uncle Sam's right to tax its citizens residing abroad. So, all American expats need to spill the beans about their accounts in foreign banks, you know, to avoid any unwanted run-ins with the taxman.
Sounds like a pain in the butt? Well, you're not alone in thinking that, as plenty of US citizens living abroad have renounced their citizenships due to this burden.
But how does it work in practice?
According to the Federal Council, under FATCA, "Swiss financial institutions disclose account details directly to the US tax authority with the consent of the US clients concerned." In case clients don't consent, the US has to request this data through regular administrative channels. The interesting twist here? Switzerland doesn't share account data with the US. But don't worry; they're trying to change that.
What's the Swiss government trying to do?
Currently, FATCA permits the US Internal Revenue Service (IRS) to demand Swiss financial institutions to divulge the deets of American-owned accounts, without offering Switzerland any reciprocity rights. To remedy this situation, negotiations are underway to make the information exchange mutual instead of one-sided.
On March 7th, the Federal Council announced plans for Switzerland to "no longer provide information on financial accounts to the United States on a unilateral basis, but instead also receive information from the United States as part of an automatic exchange."
A consultation on this matter will continue until June 14th.
Will this help US citizens living in Switzerland?
Sadly, no. This change won't impact the tax obligations that American expats have towards Uncle Sam. However, there's a glimmer of hope if you're on that side of the pond.
US lawmakers are considering a bill to scrap citizenship-based taxation. Known as the Residence-Based Taxation for Americans Abroad, this bill aims to modify the US tax code to introduce elective residence-based taxation. But whether it'll pass and bring any tax relief to US residents abroad remains to be seen.
Want to learn more about this proposed change? Give this article a read: READ ALSO: Congress to consider bill to end citizenship-based taxation**
Now, let's break it down: Under the existing protocol, Swiss financial institutions will provide account details about US account holders to the Swiss government, which will then communicate this information to the IRS. This process, however, is reversible under the new protocol, with the US also sharing similar information about Swiss residents' accounts. This adjustment, known as moving from a Model 2 Intergovernmental Agreement (IGA) to a Model 1 IGA, may streamline reporting processes for Swiss banks and increase transparency, although it doesn't significantly alter the requirement for US citizens to report their foreign financial assets to the IRS.
- The existing protocol requires Swiss financial institutions to provide account details about US account holders to the Swiss government, which then communicates this information to the IRS.
- Under the new protocol, the process may be reversed, with the US also sharing similar information about Swiss residents' accounts.
- This adjustment, known as moving from a Model 2 Intergovernmental Agreement (IGA) to a Model 1 IGA, may streamline reporting processes for Swiss banks and increase transparency.
- However, the requirement for US citizens to report their foreign financial assets to the IRS remains unchanged.
