Switzerland Changes to Model 1 FATCA IGA

On June 27, 2024, the Swiss State Secretariat for International Finance (SIF) announced the signing of a new Intergovernmental Agreement (IGA) under the Foreign Account Tax Compliance Act (FATCA) between Switzerland and the USA. Scheduled to take effect on January 1, 2027, this new FATCA IGA is a reciprocal Model 1 IGA. Under the provisions of the new IGA, the USA will therefore start exchanging limited account holder information with Switzerland.

More importantly, the adoption of the Model 1 will affect Swiss Foreign Financial Institutions (FFIs) in various ways. Also, many changes will require Swiss FFIs to update their systems to allow for the new statuses and reporting requirements.

The Swiss FATCA Act and Ordinance will be amended to incorporate changes introduced by the new FATCA IGA. Due to differences between the current and new IGA, various modifications will be necessary. Additionally, matters not addressed in the IGA must be regulated through national legislation. These include, for example, formalizing the FATCA reporting deadlines, as the IGA currently does not specify filing deadlines for Swiss FFIs.

We will describe below many of the impacts the IGA change will have on current Swiss FFIs. We remind that for FFIs that have already selected a status under the FATCA Final Regulations (e.g., Nonreporting Members of a Participating FFI Group) the IGA change will have no impact on their registration, compliance program, certification, and reporting requirements.

Please note that some information in the following paragraphs may be subject to change.

New FATCA Statuses and Registration Requirements

In the new FATCA IGA, Annex II has been significantly revised introducing the following new or revised Nonreporting IGA FFI statuses:

• Financial Institutions with Local Client Base (revised)

• Local Bank (new)

• Financial Institution with Only Low-Value Accounts (new)

• Qualified Credit Card Issuer (new)

• Trustee-Documented Trust (new)

• Sponsored Investment Entity and Controlled Foreign Corporation (new)

• Sponsored, Closely Held Investment Vehicle (new)

• Investment Advisors and Investment Managers (revised)

• Collective Investment Vehicle (revised)

These welcome changes will mainly help small banks, as well as Swiss FFIs that are not banks or brokers to implement the FATCA requirements more effectively. The introduction of the FATCA statuses Trustee-Documented Trust, Sponsored Investment Entity, and Sponsored, Closely Held Investment Vehicle (at the IGA level), will, for example, significantly impact Swiss trustees in a good way, as they will now be able to apply the Nonreporting IGA FFI status for trusts.

We will provide more information on some of the new statuses in the future.

The change in the IGA will also affect the FATCA registrations of Swiss FFIs currently registered with the IRS. These FFIs will be able to continue using their existing GIIN, but they will have to update their current registration status in the FATCA FFI Registration Portal (FATCA Portal). Once the FATCA IGA enters into force, the IRS plans to automatically change the registration status of affected FFIs to “registration incomplete” on the portal, after which these FFIs will need to resubmit the registration within 20 days of the agreement's enactment of the FATCA IGA.

• All Swiss FFIs currently having the FFI status Reporting Model 2 FFI must change their FATCA status to Reporting Model 1 FFI in the portal, since their FFI Agreements are expected to expire on the day before entry into force of the new IGA. The FFI Agreement is expected to continue to apply to any branches that are covered by the FFI Agreement (i.e. branches located in Model 2 or non-IGA jurisdictions).

• Financial Institutions with a Local Client Base (Local FFIs under the Model 2 IGA) will no longer be classified as Registered Deemed-Compliant FFIs under the IGA. Instead, the Local FFI status in the new IGA is a non-registered deemed-compliant status (a status that does not have a Global Intermediary Identification Number GIIN), similar to the certified deemed-compliant statuses in the Model 2 IGAs and the FATCA Final Regulations.

  Local FFIs that wish to continue to be treated as such under the new FATCA IGA may choose to deregister from the FATCA Portal, if they have no accounts to report, which will result in the loss of their GIIN. However, if they have accounts to report, they will have to continue to be registered to report those accounts, which may lead many Local FFIs to opt to keep their current registered status. Those FFIs may still be prompted by the FATCA portal to submit a certification, as the portal does not distinguish between a Local FFI under an IGA and a Local FFI under the FATCA Final Regulations. We expect those local FFIs to select "not required to certify" when they are prompted to do the certification.

  There will be no changes for Local FFIs that select(ed) a Local FFI status under the FATCA Final Regulations.

  Alternatively, Local FFIs can opt to change to a Reporting Model 1 FFI, Financial Institution with Only Low-Value Accounts or Local Bank status.

• Investment advisors and investment managers who previously selected the registered deemed-compliant FFI status Nonreporting IGA FFI – Swiss Investment Adviser under the previous IGA will also no longer be classified as Registered Deemed-Compliant FFIs under the new FATCA IGA. To adopt the new (non-registered) deemed-compliant status as "Nonreporting IGA FFI - Investment Advisors and Investment Managers", the affected FFIs will need to deregister from the FATCA Portal, which will result in the loss of their GIIN. For investment advisors and investment managers wishing to retain their GIIN, they will have to change their status to Reporting Model 1 FFI.

We recommend all FFIs to perform a brief reevaluation of their FATCA status once the Swiss legislation and guidance has been finalized.

Compliance Program and Certifications

There will be an impact on the compliance programs of FFIs that are Reporting Model 2 FFI or that are Registered Deemed-Complaint FFIs which are required to establish a compliance program. First, for the former Reporting Model 2 FFIs, the FFI Agreement will no longer be in force which means that it will not have to be renewed. Second, Reporting Model 2 FFIs changing their FATCA status to Reporting Model 1 FFI will no longer be required to perform the periodic certifications.

The Memorandum of Understanding regarding the new IGA specified that Reporting Model 2 FFIs whose FFI Agreement expires on the day immediately before entry into force of the Agreement are not expected to be required to submit to the IRS any outstanding certifications of compliance or final certification of compliance as otherwise required by the FFI Agreement.

Since the provisions of the new IGA are expected to enter in force on January 1, 2027, the FATCA periodic certifications for the certification periods ending on December 31, 2026 or earlier will not be affected by the transition.

Furthermore, the formal requirement to establish a FATCA compliance program will no longer be applicable under the provisions of the IGA and the FATCA Final Regulations. As long as the Swiss legislation is not amended, it is open whether this requirement will be included in the new version of the Swiss FATCA Act or any implementation guidance. We recommend that Swiss FFIs take this opportunity to generally revise their compliance programs.

Documentation Requirements

Since some statuses will no longer exist, the implementation of the Model 1 IGA will constitute a change in circumstances. Therefore, all FFIs that change their status due to the model change will have to inform their counterparties within 90 days after the entry in force of the new FATCA IGA of their new status, either by (i) providing to each withholding agent either a new withholding certificate (e.g. W-8 form) or another type of confirmation of the change in status, or (ii) otherwise inform withholding agents through publicly available means of the change of the status. It is not yet specified what would be considered "publicly available means".

Additionally, any FFIs, including non-Swiss FFIs, that maintain accounts for Swiss FFIs will need to have reason to know that the FATCA status of their account holders who are Swiss registered FFIs under the previous Model 2 IGA becomes unreliable or incorrect once the 90-day period expires. Consequently, these FFIs may be required to treat these account holders as undocumented.

Reporting Requirements

The FATCA reporting will no longer be filed directly with the IRS via Form 8966 but directly with the Swiss Federal Tax Authority (SFTA).

1. Since U.S. accounts will now be reported directly to the SFTA, the authority must either establish a FATCA reporting portal or adapt the existing AEOI portal to accommodate FATCA submissions. If the SFTA opts to modify the current AEOI portal, this could harmonize some FATCA requirements with the AEOI standards.

2. The Model 1 IGA does not recognize the concept of a non-consenting account. Consequently, all U.S. accounts, regardless of their documentation status, are required to be disclosed to the FTA. According to the new FATCA IGA, new, amended, corrected, and voided reports that were prepared for the tax years covered by the previous Model 2 IGA will be filed according to the new IGA. Therefore, for non-consenting accounts this would mean that they will be disclosed to the SFTA rather than reported in a pooled basis to the IRS.

3. Subsequently, the elimination of the reporting obligation for the undisclosed pooled reporting of non-consenting accounts will also result in the elimination of the FATCA Group Requests. The transitional rules specify that the provisions of the current FATCA IGA will remain in effect until December 31 of the calendar year in which the new FATCA Agreement enters into force. Therefore, based on the current timeline, the final FATCA Group Requests are anticipated to occur in 2027.