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The online magazine of the Swiss Bankers Association
2017/06/21 01:45:00 GMT+2

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Will FATCA soon be obsolete?

Will FATCA soon be obsolete?

“FATCA has failed.” These words of introduction were written in a letter from two prominent US politicians addressed to the White House and the US Treasury. In the letter, they call on the Trump administration to nullify FATCA.

Since mid-2014, financial institutions around the world have been obliged to implement the US’ FATCA law. If they fail to do so, they effectively remain excluded from the US financial market – the world’s most important financial market. For banks, the implementation of FATCA translates into a very significant administrative and financial burden.

Former Federal Councillor Eveline Widmer-Schlumpf once described FATCA as a bitter pill that Switzerland must swallow. And like it or not, Switzerland has swallowed the pill. The Swiss banks are implementing FATCA in an exemplary fashion. Helpful in the process is the fact that Switzerland – like many other countries – reached an agreement with the US to facilitate the implementation of FATCA. Notwithstanding, the costs and administrative burden for the banks remain immense. 

Quid pro quo? Not in all terms

The FATCA agreement between Switzerland and the US is unilateral. It sets out many obligations that must be met by Swiss banks, in particular the periodic reporting of certain account information to the US tax authorities. Switzerland does not receive any information from the US in return.

This is one of the reasons that Switzerland is seeking to switch to a reciprocal FATCA agreement under the so-called Model 1. When exactly such an agreement will come into force is not known at present.

The Swiss banks are implementing FATCA in an exemplary fashion.

A reciprocal FATCA agreement would be a step in the right direction. However, even under such an agreement, the information that Switzerland would receive would not be equal to the information that it would be obliged to provide.
Having said that, the Automatic Exchange of Information according to the OECD standard (AEOI) has now firmly established itself at the international level. AEOI governs how tax authorities from different countries mutually exchange information about the accounts of taxpayers. With the exception of the US, all important financial centres (over 100 jurisdictions in total) have committed to implementing AEOI.

Positive and negative signals from the US…

It is interesting to note that there appears to be some opposition to FATCA coming out of the US itself: two prominent American politicians recently sent a letter to the White House and the US Treasury soliciting them on this matter. In the letter, they write that FATCA has failed to meet its intended objectives and is causing major economic damage. Among other things, the two American politicians call for the Trump administration to commit to nullifying FATCA. 

FATCA has failed to meet its intended objectives and is causing major economic damage.

In principle, this is welcome news. But how should this call from within the US to repeal FATCA be interpreted? Would such measures be accompanied by a commitment to AEOI? Unfortunately, this cannot be deduced from the demands made by the two American politi-cians. On the contrary: it would appear that the desire to repeal FATCA arises from the belief that reciprocal FATCA agreements endanger the privacy of Americans. AEOI there-fore does not appear to be the desired objective – at least not for these two politicians.

Mr. President, please commit to AEOI!

In light of the trend surrounding the international standard, repealing FATCA would be the logical outcome. At the same time, however, the US must also adhere to international standards. This means that in consequence, the US would also have to implement AEOI. Otherwise, it would remain the only country with important financial centres to lag far be-hind the international standard for preventing cross-border tax evasion. If this were to be the case, it would prevent the establishment of a level playing field.