FATCA, the US Foreign Account Tax Compliance Act, has been stirring the banking industry for some time now. While the implementing rules still need to be finalized, its main elements and its grave ramifications are more or less clear at this point: Unless a so-called „foreign financial institution“ enters into an agreement with the IRS, a 30% withholding tax will be applied to all withholdable payments made to the institution. Under such agreement, the financial institution undertakes to identify its US clients and to report them to the IRS. Simply put, it will become very difficult for banks to conduct business with US citizens or other persons or institutions covered by FATCA (e.g. green card holders, companies with substantial US shareholders, and others). In addition, being non-compliant with FATCA would not only affect a bank’s US clients, but also a substantial part of its other clients, such as clients holding US securities. Doing business with US persons or not, non-compliance will not be an option for most banks.

However, becoming and remaining compliant comes at a substantial operational cost, i.e. effort. Reporting to the IRS will need to be set up, clients will have to be contacted - some of them being obliged to waive for example Swiss banking secrecy - and internal mechanisms (including IT mechanisms) ensuring the identification of US persons will have to be created. In light of this, implementation time is very short, facing the January 1, 2013 deadline. Nevertheless, FATCA is not impossible to handle, but banks are well advised to get up to speed and put together a project team that familiarizes itself with all requirements quickly.

In this interview, we will go into more detail with Jürg Bühlmann, attorney-at-law with a focus on banking regulation, and explore the cornerstones of FATCA, its effects on banks, as well as some of the options banks are facing in this context.

Michael Stoeckli



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