Government green-lights tax negotiations

Finance Minister Widmer-Schlumpf (left) paved the way for negotiations in a meeting with Italian's prime minister, Mario Monti, in June AFP

The cabinet has adopted the terms for negotiations with Washington on an agreement easing implementation of tax regulations. Switzerland seeks to reach a compromise deal to protect its financial industry.

In an effort to crack down on suspected American tax dodgers, the United States authorities want to impose a 30 per cent withholding tax on all bank deposits held by its citizens abroad if they do not reveal their identities.

Switzerland, for its part, is trying to get exemptions.

”The aim of the negotiations is to ensure an optimum framework for the Swiss financial industry with regard to the implementation of the Foreign Account Tax Compliance Act (Fatca) and strengthening of the financial centre strategy,” the finance ministry said on Wednesday.
 
In June, both sides signed a joint declaration of intent for implementing a simplified anti-tax evasion law based on a model developed by Switzerland and Japan.

It states that Swiss financial institutions do not have to reveal the name of their US clients, but Washington can ask for legal assistance in case of uncooperative taxpayers.

The data would be handed over directly from the banks to the US authorities. The Swiss government also wants to exempt social security and pension funds as well as property insurance from the accord.

The Swiss Bankers Association has welcomed the proposals.

The talks are to begin soon, according to the ministry, but no date was given.

Tax deal with Italy

The cabinet also approved a mandate for negotiations with Italy based on similar accords with Germany and Britain.

It foresees a withholding tax for untaxed assets of accounts held by Italian citizens in Swiss banks.

Other points to be negotiated are an agreement on double taxation, easing market access for Swiss companies and the suspension of Italy’s black lists as well as a tax accord on cross-border workers.

Finance Minister Eveline Widmer-Schlumpf, who is also this year’s Swiss president, met with Italian Prime Minister Mario Monti in Rome and in the Swiss mountain resort of Silvaplana earlier this year.

The Facts on Fatca

The Foreign Account Tax Compliance Act was passed in the US in 2010 as part of the Hiring Incentives to Restore Employment Act.

Fatca was designed to close loopholes in existing tax compliancy regulations, known as the Qualified Intermediary (QI) accord.

The law obliges foreign firms to report offshore accounts and security trades by US clients that amount to more than $50,000 (SFr47,942).

If they fail to do so, they will be hit with a 30% withholding tax.

The US expects the new legislation to net $10 billion inside ten years.

The estimated annual cost to each foreign bank to implement the law has been put at $100 million.

The US plans to bring Fatca into force in stages, starting as early as next year.