The U.S. Treasury Department has released the Model II Intergovernmental Agreement (IGA) on 14 November 2012 for the implementation of the reporting and withholding tax provisions of the Foreign Account Tax Compliance Act (FATCA), which currently would apply for Switzerland.
Although the final regulation is not to be expected before January 2013 the IGA Model II as now published provides clear guidance on how to implement FATCA. Many uncertainties around definitions and practical application of electronic searches of US Indicia, the physical file review and especially documentation requirements are gone.
In case Switzerland finally signs this published version of the IGA, the implementation will be less costly than originally estimated. However, the detailed rules make it also slightly more complex in terms of what to do when and how. Small local FFI’s might benefit from this IGA. Therefore those institutions that might benefit from that need to do a detailed analysis with regards to the possibility to achieve a deemed compliant status.
Major reliefs and clarifications compared to the draft FATCA regulation
- In case all indicia for a US Person have been electronically searched, i.e. must be available in the system and no indicia has been found a physical file review for accounts above USD 1 million is not required.
- Detailed guidance is given how the documentation / due diligence need to be conducted for accounts, where indicia are found.
- Lower value accounts (i.e. between USD 50’000 /personal), USD 250’000 (entities) and USD 1 million) need, where indicia are found, to be documented according to the new guidance by 31 December 2015.
- The electronic search needs to go back 5 years to identify US indicia for certain information such as standing instructions or power of attorney
- Where e.g. the US place of birth is not electronically searchable, but other information are as prescribed in the IGA a paper file review might be waived anyway
- A paper file review is a one off exercise
- The relationship manager inquiry re US Person needs to be reapplied on an annual basis
- Documentation requirements as well as definitions for active and passive NFFE’s are now available
- Currency conversation date to determine thresholds is defined
- The aggregation of account information will be dependent on the available system infrastructure and might therefore not be required
- Requirement with regards to documentary evidence
- Relief for collective investment schemes in terms of being able to achieve a deemed compliant status. Where no physical shares in bearer form have been issued after 31 December 2011 and due diligence procedures at the time of redemption or other payments are made, this status can still be achieved.
More detailed information: Impacts of IGAs
More detailed information in German: Folgen des zwischenstaatlichen Abkommens (IGA)