* Foreign banks worried about Foreign Account Tax Compliance
* Swiss bank secrecy an obstacle to cooperation
* Switzerland seeking to get tax probes into banks dropped
By Patrick Temple-West and Emma Thomasson
WASHINGTON/ZURICH, June 21 The U.S. Treasury
Department said on Thursday it had reached tentative agreements
with Switzerland and Japan to help banks in those countries
comply with upcoming U.S. tax evasion regulations.
U.S. tax collectors are on track to begin penalizing foreign
banks in 2014 for failing to disclose information to government
authorities about clients who are U.S. citizens. Foreign banks
have fretted about this, with some saying they could not comply
due to domestic privacy laws.
Thursday's agreements offer a compromise in which banks in
Switzerland and Japan could meet U.S. and domestic regulatory
demands by reporting some data directly to the U.S. Internal
Revenue Service and other data to home governments.
The Swiss and Japanese deals expand the list of countries
already cooperating with Treasury to implement the U.S. Foreign
Account Tax Compliance Act, or FATCA, a 2010 anti-tax evasion
Treasury said in February it was negotiating with France,
Germany, Italy, Spain and Britain to set up
government-to-government information-sharing deals.
When the IRS starts collecting taxpayer data from abroad, it
can check the data against information from individual U.S. tax
returns to see if Americans are dodging taxes by hiding assets
overseas and not reporting them to the IRS.
FATCA is particularly problematic for Switzerland, which
has a tradition of strict bank secrecy. But the Swiss government
said it would allow banks to comply and report accounts to U.S.
authorities by granting an exception to Swiss criminal law.
"Ultimately, the purpose here is to force voluntary
compliance," said Scott Michel, a tax lawyer with Caplin &
Drysdale. "You're going to see this be the model for FATCA
compliance going forward."
The rules dictating exactly how FATCA will be enforced have
not been finalized. Treasury officials have said the rules may
be finished as soon as August.
The Swiss government is trying to get U.S. tax
investigations against 11 banks - including Credit Suisse
and Julius Baer - dropped in exchange for
the payment of fines and the transfer of client names.
The banks are suspected of helping wealthy Americans evade
taxes through secret Swiss accounts. Flagship bank UBS
was forced in 2009 to pay a fine and release the names of 4,500
clients to U.S. officials to end a damaging probe.
Thursday's deal with Switzerland was not connected to the
U.S. Justice Department probes, a senior Treasury Department
Switzerland is also seeking a deal to shield the remainder
of its 300 or so banks from U.S. prosecution.
Swiss Finance Minister Eveline Widmer-Schlumpf said earlier
this month that U.S. officials seemed to want to end the dispute
before the presidential election in November.
While Switzerland and the United States have agreed elements
of a deal, they still have to conclude a final agreement, which
Switzerland said would be negotiated in the months ahead.
The Swiss Bankers Association said it welcomed the move,
particularly the fact that banks would be able to hand over data
directly to the U.S. authorities and not via the government as
in the solution proposed with the five European states.