SwissBanking
The online magazine of the Swiss Bankers Association
September 26, 2019

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Double taxation agreement ratified with the US

Double taxation agreement ratified with the US

The protocol of amendment to the double taxation agreement between Switzerland and the US was recently signed after having been blocked in the US Senate for a number of years. As a result, group requests will now also be possible, which allows the conclusion of the FATCA implementation.

Ten years have passed since Switzerland and the US negotiated the revision of their existing double taxation agreement (DTA). The protocol of amendment was signed on 23 September 2009 and approved by Swiss Parliament one year later.

On the US side, however, the protocol of amendment was blocked for years in the Senate Commission responsible for the matter. Rand Paul, a libertarian Republican senator from Kentucky, saw the provisions on the exchange of information as a general violation of the privacy rights of Americans living abroad. This did not only concern Switzerland, however. He ensured that four protocols of amendment to existing DTAs were not referred to the Senate by the responsible commission.

Ratification after being blocked for almost ten years in the US Senate

Thanks to a procedural trick, this blockade was successfully overcome, and the four protocols of amendment were referred to the Senate despite the resistance of Senator Paul. The protocol of amendment to the DTA with Switzerland was approved by the Senate on 17 July 2019 with a majority of 95 to 2 votes. Because Swiss Parliament already agreed to the protocol of amendment numerous years ago, only the instruments of ratification had to be exchanged after approval was received from the Senate. This took place on 20 September 2019 in Bern.

FATCA group requests now possible

The core element of the protocol of amendment is the extension of the exchange of information. On the one hand, this includes group requests within the scope of general administrative assistance, which will also be permitted for cases of suspected tax evasion from the time of entry into force of the protocol of amendment. Switzerland has therefore now aligned the DTAs with the international standard on administrative assistance with all relevant trading partners.

On the other hand, the revised DTA also allows for specific FATCA group requests. The FATCA tax transparency regime (Foreign Account Tax Compliance Act) has been in force since June 2014. Regular FATCA reporting is used to report US-related accounts to the US every year. The corresponding agreement between Switzerland and the US provides for a mechanism in the form of FATCA group requests in certain special cases which were only reported to the US in aggregated form and without individualised information. This can be the case, for example, if the bank client concerned could not be contacted over a longer period of time or did not consent to the disclosure of their information. The affected population is relatively small and has decreased over the years.

Banks that in the past submitted aggregated FATCA notifications are now preparing for the group requests. Because the banks have only ten days from the time of the request to provide the tax authorities with information, careful preparation is essential. The degree to which this impacts institutions varies, but in view of the data transfer requirements, the preparatory work is time-consuming in each case.

Way paved for further negotiations on a DTA revision

The banks and the overall economy welcome the fact that after a long delay, the ratification of the protocol of amendment has now finally been concluded. This means that the way has now been paved to launch the next round of negotiations on a further revision of the DTA. Decisive here is in particular the zero tax at source rate on dividends in corporations, which would benefit the entire economy.