Bern signs tax disclosure agreement with US

The Swiss government said on Thursday it had signed a controversial deal with the United States requiring all Swiss banks to report the holdings of their US clients to US tax authorities.

Bern signs tax disclosure agreement with US

The agreement, which was initialled in Washington late last year, aims to simplify Switzerland's implementation of the US Foreign Account Tax Compliance Act (FATCA), a source of dispute between the two countries since it was announced in March 2010.

The deal was signed in Bern by State Secretary Michael Ambuehl, in charge of financial and taxation issues, and US ambassador Donald Beyer, but still needs to pass through the Swiss parliament and could be subject to a popular referendum, the government said in a statement.

It stressed though the importance of the deal going into effect when the United States begins phasing in FATCA on January 1, 2014 to avoid penalising Swiss banks on the US market.

And it said it planned to fast-track the agreement through the usually slow parliamentary process.

Swiss Finance Minister Evaline Widmer-Schlumpf told Swiss media on Wednesday that the country had no other choice but to sign the deal, pointing out that not doing so would be detrimental to Swiss financial institutions active on US capital markets.

The government stressed that regardless of whether it signed the deal or not, Swiss institutions would not be able to circumvent the US rules, but that with the agreement in place the implementation would be simplified.

Switzerland is one of seven countries which have so far agreed to comply with FATCA, which aims to ensure that all US citizens can be taxed by the Internal Revenue Service on their income and assets worldwide.

The FATCA law is controversial in many countries because it requires banks to reveal information about their clients.

Until now, tax agreements have only provided for the exchange of information "on demand," meaning a country would already suspect possible tax evasion before requesting the information.

FATCA meanwhile requires foreign financial institutions to report all assets in accounts held by US citizens to the IRS.

In anticipation of these rules and the workload they will entail, critics say Swiss banks have already begun actively eliminating American clients.

In light of this problem and to avoid trampling on Switzerland's cherished banking secrecy rules, a number of exceptions have meanwhile been negotiated under the deal signed in Bern.

Social security funds, private pension funds and property and casualty insurers have been excluded from the Swiss FATCA filing requirements and bank compliance has been simplified, Bern said.

The new deal also ensures that information will not be transferred automatically without the client's consent, although FATCA then requires banks to charge a 30-percent withholding tax on the US client's assets.

If a client refuses consent, information about their holdings can still be exchanged, but then only through group requests under  an existing double taxation agreement between Switzerland and the United States, Bern said.

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.
For members


EXPLAINED: Everything you need to know about Swiss language tests for residency

The language standards for permanent residency is different than that for citizenship. Here's what you need to know.

EXPLAINED: Everything you need to know about Swiss language tests for residency

Whether granting permanent residency or citizenship, whether you are ‘successfully integrated’ is the major question for Swiss authorities. 

Being successfully integrated means that they “should participate in the economic, social and cultural life of society”, according to the State Secretariat for Migration.

Reader question: What does being ‘successfully integrated’ in Switzerland mean?

Speaking a Swiss language is crucial. While you will not need to speak a Swiss language when you arrive, you will need to demonstrate a certain degree of language proficiency in order to stay long term. 

However, the level of language proficiency differs depending on the type of residency permission you want: residency permit, permanent residency or Swiss citizenship. 

This is outlined in the following table.

Image: Swiss State Secretariat for Migration

Image: Swiss State Secretariat for Migration

What does proficiency in a Swiss language mean?

Proficiency in a Swiss language refers to any of the major Swiss languages: Italian, German, French and Romansh. While Romansh is also a Swiss language, it is not spoken elsewhere and is only spoken by a handful of people in the canton of Graubünden. 

There are certain exceptions to these requirements for citizens of countries where these languages are spoken, as has been outlined here

English, while widely spoken in Switzerland, is not an official language of Switzerland and English proficiency will not grant you Swiss citizenship. 

Moving to Switzerland, it may appear you have three world languages to choose from, although by and large this is not the case. 

As the tests are done at a communal level, the language in the commune in question is the one you need to speak

Therefore, if you have flawless French and live in the German-speaking canton of Schwyz, you need to improve your German in order to make sure you pass the test. 

While some Swiss cantons are bilingual, this is comparatively rare at a municipal level. 

A Swiss Federal Supreme Court case from 2022 held that a person is required to demonstrate language proficiency in the administrative language of the municipality in which they apply, even if they are a native speaker of a different Swiss language. 

What Swiss language standards are required for a residency permit?

Fortunately for new arrivals, you do not need to show Swiss language proficiency. 

Generally speaking, those on short-term residency permits – such as B Permits and L Permits – are not required to show proficiency in a national language. 

There are some exceptions – for instance people on family reunification permits – however by and large people who have just arrived in Switzerland for work do not need to demonstrate language proficiency. 

What Swiss language standards are required for permanent residency?

While ‘permanent residency’ might sound like ‘residency permit’, it grants a far greater set of rights for the holder – and with it a more extensive array of responsibilities. 

EXPLAINED: What’s the difference between permanent residence and Swiss citizenship?

One of these obligations is Swiss language proficiency. 

For ordinary permanent residency – which is granted after an uninterrupted stay of five years or ten years in total – you need to demonstrate A2 level of a spoken Swiss language and A1 written. 

Citizens of Austria, Belgium, Denmark, France, Germany, Greece, Italy, Liechtenstein, Netherlands, Portugal and Spain are exempt from these language requirements. 

For fast-tracked permanent residency, the language level is a little higher. 

You must demonstrate A1 written but B1 spoken. 

There are also exceptions for people who can demonstrate they have a Swiss language as their mother tongue, or that they have attended compulsory schooling for a minimum of three years in a Swiss language. 

Demonstrating language proficiency must be done through an accredited test centre. The accreditation process is handled at a cantonal level. More information is available here

What Swiss language standard is required for citizenship?

The standard is slightly higher for citizenship than for permanent residency. 

Candidates must demonstrate A2 level writing ability and B1 spoken skills. This is the level set out in the Common European Framework of Reference for Languages.

These rules, which came into effect on January 1st, 2019, set up a uniform minimum level of language proficiency required on a federal basis. 

Previously, there was no consistency in language testing, with many cantons in the French-language region making a judgment based on the candidate’s oral skills.

Cantons are free to set a higher bar if they wish, as Thurgau has done by requiring citizenship candidates to have B1-level written German and B2 (upper intermediate) spoken German. The rules are also stricter in St Gallen and Schwyz. 

More information is available at the following link. 

Naturalisation: How well must I speak a Swiss language for citizenship?