The year 2012 has, undoubtedly, been a rough one for Swiss banks with U.S. account holders: The oldest Swiss private bank has vanished after facing criminal charges in U.S. proceedings, and several other banks are currently under investigation in the United States. The Swiss administration is working on a global settlement with the United States, which would, ideally, resolve all legacy issues for the past and enable the Swiss banking industry to focus on the future. It remains to be seen whether the re-elected U.S. administration will put a global settlement on its agenda.

 

FATCA and Switzerland

In 2010, the United States enacted FATCA, which introduced reporting requirements for foreign financial institutions (FFIs). In 2012, significant progress had been made regarding the signing of a cooperation agreement between the United States and Switzerland, which will presumably come into force on Jan. 1, 2014. Under the terms of such an agreement, Switzerland would agree to: (1) direct all Swiss financial institutions (which aren’t otherwise exempt or deemed compliant pursuant to the agreement) to conclude an FFI agreement with the U.S. Internal Revenue Service; (2) enable these Swiss financial institutions to comply with the obligations prescribed under FATCA rules and set forth in such FFI agreements, in particular regarding the reporting of information to the IRS, by granting an exception from Article 271 of the Swiss Criminal Code, which prohibits unlawful activities on behalf of a foreign state; and (3) accept and promptly honor a group request by the U.S. competent authority for additional information.

 

New Double Taxation Treaties

While the ratification of a double taxation treaty between the United States and Switzerland is currently stalled in the U.S. Senate, in 2012, Switzerland signed double taxation treaties with, among others, Singapore, Hong Kong and the United Arab Emirates. 

After approval by the Swiss parliament, the ratification of the withholding tax agreements with the United Kingdom and Austria is on track, and both agreements should enter into force on Jan. 1, 2013. On the other hand, a similar tax treaty with Germany isn’t expected to come into force in the foreseeable future, due to a highly politicized debate in Germany. Finally, in autumn 2012, the draft of a revised inheritance tax treaty between France and Switzerland was presented to the broader public, triggering fierce criticism in both countries. 

 

What Lies Ahead?

On an international level, 2013 will be heavily influenced by the implementation of FATCA, which still leaves open many questions for both the financial industry and legal advisors. Furthermore, the focus will remain on the Swiss banks, which face the risk of criminal charges in the United States.