On 20 September 2019, the final step to bring the 2009 protocol to the Swiss-US double tax treaty into force was executed when government representatives exchanged the instruments of ratification. The protocol is applicable with immediate effect and among other things allows the IRS to make group requests under FATCA concerning non-consenting US accounts and non-consenting NPFFIs.

In this blog, we highlight the top 5 challenges and top 5 tips for a Swiss financial institution (FI) in anticipation of the FATCA group requests.

See our prior blog post to find out what other changes the protocol has brought.

The ratification of the protocol finally enables the IRS to benefit from the respective provisions in the Swiss-US IGA and make group requests regarding Swiss FIs’ non-consenting clients who have been included in the Form 8966 pool reporting between 2014 and 2018.

Based on the experience with other Model 2 IGA countries, we expect that the first group requests from the IRS will arrive rather sooner than later at the Swiss Federal Tax Administration (SFTA), who will immediately forward them to the affected FIs. Getting ready to reply to FATCA group requests should thus be a top priority for FATCA responsible officers and their teams during the next weeks.

Top 5 challenges

Preparing for the FATCA group requests presents numerous challenges, including:

• Response time: Swiss FIs will only have 10 days to respond to requests from the SFTA and deliver the necessary information, and penalties may be imposed for late filing.
• Retroactivity: Group requests potentially affect all non-consenting US accounts reported for 2014 through 2018 as well as non-consenting NPFFIs reported for 2015 and 2016. Thus, FIs will be required to recompile the population of affected accounts and gather historic information about them. This may pose a special challenge on FIs that have undergone system migrations or staff turnover, or that were involved in mergers or bulk acquisitions of accounts.
• Data collection: Separate information packages must in principle be prepared per account and year, which exponentially increases the amount of preparatory work for FIs. Further, not only the regular FATCA reporting data (FATCA-XML) must be prepared but also additional information (SEI-XML and pdf documentation) is required to enable the SFTA to conclude whether administrative assistance can actually be provided. Finally, it is likely that not all reportable data is readily available in the FIs’ systems (e.g. relationship to other accounts, applied due diligence provisions or definitions, reason for reporting, etc.) and thus data mapping and manual enhancement exercises are required.
• Format requirements: Reportable information must be delivered to the SFTA in XML format and in an OCR-readable pdf file. Even FIs with only a small number of affected accounts must comply with those specifications and ensure they have technology to convert information into the prescribed format.
• “Gaps” in the guidance: While the SFTA’s user guide seems comprehensive at first sight, some practical questions remain open. FIs may wish to discuss with their tax advisor how those “gaps” should be closed.

Top 5 tips

Swiss FIs should wisely use the remaining time before the group requests arrive, including taking care of the following aspects:

• Allocation of resources: FIs must ensure that responsibilities are clearly assigned within the organisation, including respective deputies and “emergency plans” (in case group requests are not made immediately but would arrive for example right before the Christmas holidays). This may also include deprioritising other tasks of involved persons, or involving additional internal or external resources.
• Inform SFTA about contact person: In order to ensure that group requests arrive directly at the responsible person within the organisation and no valuable time is lost, FIs can inform the SFTA upfront about the contact person via [email protected].
• Use of comment function: We recommend using the comment fields in the SEI-XML to provide background information on more complex cases to minimise the need for follow-up discussions with the SFTA. In addition, the comment fields should be used where certain documents are not available (e.g. if the FI was informed about the US indicium via phone).
• Quality assurance review: This includes reconciling the number of reported accounts and the reported amounts with the original Form 8966 reporting, validating that the XML files meet the format specifications, and generally ensuring that the reportable data is correct. FIs may want to engage an independent external reviewer to assist with this task (e.g. sample testing of certain account files)
• Preparing for the actual submission: Finally, FIs should not forget about the file naming convention and encryption requirements, need to familiarise themselves with the exchange of credentials process (which must be performed before the actual submission), and if time allows may do a test submission to the SFTA.

Deloitte view

While the ratification of the protocol was anticipated in the last third of 2019, no one actually expected this to happen so soon and without any advance notice from the authorities. Nevertheless, the clock is ticking.
Now, Swiss FIs must put this topic on top of their tax agenda, mobilise the necessary in-house resources and talk to their advisor in case they anticipate that they will not be ready on time without external support.

By: Robin King, Senior Manager Financial Services Tax.

Key contacts

Brandi Caruso - Partner, Financial Services Tax 

Brandi heads the Tax Transparency offering within the Financial Services Tax practice across Switzerland, responsible for services related to QI, 871(m), FATCA, CRS, and DAC6. She is a technical advisor and a subject matter expert to a number of Swiss-based trust companies and banks and leads the Deloitte Trust Forum. She has more than 15 years of experience with Deloitte in the US, UK, and in Switzerland.

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Karim Schubiger – Director, Financial Services Tax 

Karim leads the Tax Transparency team in the Suisse Romande and Ticino markets within the Financial Services Tax & Legal practice, responsible for services related to QI, FATCA, CRS, 871(m) and DAC6. He is a technical advisor and subject matter expert to financial institutions in the banking, trust, and insurance sectors. Prior to joining Deloitte, Karim worked for eight years in support teams of Swiss banks, in particular in areas such as operations, project and change management as well as operational taxes.

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Michael Grebe - Director, Financial Services Tax

Michael is a Director in the Financial Services Tax practice. He advises banks, trust companies, and insurers in relation to the interpretation and implementation of the global transparency related regimes. He has over ten years of experience in the financial industry covering a broad spectrum ranging from Process- over Project- to Product- Management. Prior to joining Deloitte, he led the FATCA and CRS implementation project for a global financial institution.

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Robin King - Senior Manager, Financial Services Tax

Robin is a Senior Manager working in Financial Services Tax. He is currently advising leading Swiss universal and private banks, acting as subject matter expert in the area of QI, FATCA , CRS and DAC6. Robin is the author of several articles on CRS. Prior to joining Deloitte, he worked as a cross-border tax compliance expert at a Swiss private bank.

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