Switzerland is planning a significant step forward in the exchange of tax data with the United States: the transition from the current FATCA Model 2 to Model 1 is imminent. This transition to automatic and reciprocal information exchange will bring about significant changes for Swiss financial institutions and their clients. Find out what changes you can expect and how you can best prepare for them.
On 7 March 2025, the Federal Council opened the consultation process for a new FATCA agreement that provides for a switch from the current Model 2 to Model 1. This change aims to intensify and simplify the exchange of information between Switzerland and the US. For Swiss financial institutions and their clients, this means adapting to new reporting requirements and processes.
What is the Foreign Account Tax Compliance Act (FATCA)?
The Foreign Account Tax Compliance Act (FATCA) is a US law introduced in 2010 to combat tax evasion through assets held abroad by US taxpayers. FATCA requires foreign financial institutions to report information about accounts held by US persons to the US Internal Revenue Service (IRS). Failure to comply may result in sanctions, such as a 30% withholding tax on US income.
Implementation in Switzerland to date
Since 2 June 2014, Switzerland has been implementing FATCA under the so-called Model 2. Under this model, Swiss financial institutions report the account details of US clients directly to the US tax authorities with their consent. If consent is not given, the US must request the data through the ordinary administrative assistance channel. This model led to a unilateral flow of information from Switzerland to the US without Switzerland receiving any information in return.
Switch to Model 1
The switch to Model 1 is intended to establish an automatic and reciprocal exchange of information. In concrete terms, this means that Swiss financial institutions will no longer transmit the relevant account data directly to the US authorities, but to the Federal Tax Administration (FTA). The FTA then forwards the information to the IRS. In return, Switzerland receives data from the US on accounts held by persons who are taxable in Switzerland. This bilateral exchange increases transparency and strengthens legal certainty for all parties involved.
For the first time, Switzerland will systematically receive information about accounts held in the US by persons who are taxable in Switzerland, which will facilitate the fight against tax evasion. Centralised reporting to the FTA also standardises and simplifies the process for Swiss financial institutions. Clear reporting channels and responsibilities should therefore reduce uncertainty and potential conflicts.
Challenges and action required for financial institutions
The transition to Model 1 poses a number of challenges for Swiss financial institutions:
The adaptation of internal processes will be a very important issue. Reporting processes must be changed in line with the new requirements. Employees must therefore be informed and trained about the new reporting obligations and processes. In addition, customers should be informed about the changes and their impact on their accounts in order to ensure transparency and trust.
Timetable and next steps
The consultation on the new FATCA agreement will run until 14 June 2025. The Federal Council will then evaluate the comments received and submit a draft bill to Parliament. The aim is to bring the new agreement into force on 1 January 2027.
Conclusion and outlook
The planned switch from FATCA Model 2 to Model 1 marks an important step towards greater transparency and equal treatment in the international exchange of tax information. For Swiss financial institutions, this will mean some adjustment costs in the short term, but in the long term it will bring advantages in the form of clear processes and greater legal certainty. It remains to be seen how the parties concerned will implement the changeover and what further steps will be taken towards a globally standardised exchange of information.