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FATCA Model II – Swiss and Japanese Versions Compared

I. General Considerations of the Swiss-U.S. FrameworkNotesI. General Considerations of the Japanese-U.S. Framework
A. The United States and Switzerland, building on their existing relationship with respect to mutual assistance in tax matters, seek to strengthen and improve their cooperation in combating international tax evasion.Basis of agreement

Both: Cooperation in combating international tax evasion.

Swiss: An existing relationship to strengthen and improve their cooperation.

Japan: A longstanding and close relationship to intensify their cooperation.
A. Building on their longstanding and close relationship with respect to mutual assistance in tax matters, the United States and Japan wish to intensify their cooperation in combating international tax evasion.
B. On 18 March 2010, the United States enacted provisions commonly referred to as the Foreign Account Tax Compliance Act (FATCA), which introduce reporting requirements for foreign financial institutions (FFIs) with respect to certain accounts. Be- cause of certain legal or contractual restrictions in Switzerland, however, financial in- situations in Switzerland may not be able to comply directly with all the reporting, withholding, and account closure requirements of FATCA.Conflicts of law

Swiss: Due to legal or contractual restrictions, FFIs may not be able to comply directly with reporting, withholding and account closure requirements of FATCA.

Japan: FATCA has raised some issues including that FFIs in Japan may not be able to comply with all reporting, withholding, and account closure requirements of FATCA due to legal restrictions.
B. On 18 March 2010 the United States enacted provisions commonly referred to as the Foreign Account Tax Compliance Act (FATCA), which introduce reporting requirements for foreign financial institutions (FFIs) with respect to certain accounts. FATCA, however, has raised some issues, including that financial institutions in Japan may not be able to comply with all of the reporting, withholding and account closure requirements of FATCA because of legal restrictions.
C. Intergovernmental cooperation to facilitate FATCA implementation would address these legal or contractual impediments to compliance, simplify practical implementation, and reduce FFI costs.Reason to cooperate

Both: Identical but for Switzerland includes contractual impediments as well as legal.
C. Intergovernmental cooperation to facilitate FATCA implementation would address these legal impediments to compliance, simplify practical implementation, and reduce FFI costs.
D. In furtherance of the policy objectives of FATCA, the United States is open to adopting with interested countries, either an intergovernmental approach to implement FATCA (which would involve reporting by FFIs to their own governments followed by the automatic exchange of this information with the United States), or a framework for intergovernmental cooperation to facilitate FATCA implementation (which would provide for reporting directly between the FFIs and the United States according to the FATCA rules, supplemented by exchange of information on request).Framework

Swiss: Framework would provide reporting directly between FFIs and the U.S. according to the FATCA rules, supplemented by exchange of information on request.

Japan: Framework would provide reporting directly between the FFIs and the United States in a manner consistent with FATCA requirements, supplemented by exchange of information on request.
D. In furtherance of the policy objectives of FATCA, the United States is open to adopting with interested countries, either an intergovernmental approach to implement FATCA (which would involve reporting by FFIs to their own governments followed by the automatic exchange of this information with the United States), or a framework for intergovernmental cooperation to facilitate the implementation of FATCA (which would provide for reporting directly between the FFIs and the United States in a manner consistent with FATCA requirements, supplemented by exchange of information on request).
E. In the expectation of contributing to a solid basis for an enhanced co-operation in tax matters with the United States, Switzerland is supportive of negotiating a bilateral framework agreement to facilitate the implementation of FATCA.U.S. reciprocity

Swiss: None explicitly noted.

Japan: U.S. affirms willingness to collect and exchange information under the existing income tax convention on accounts held in U.S. financial institutions by residents of Japan.
E. Japan is supportive of the underlying goals of FATCA, and is interested in exploring a framework for intergovernmental cooperation to facilitate the implementation of FATCA and improve international tax compliance. The United States affirms its willingness to cooperate with Japan by collecting and exchanging information under the existing income tax convention on accounts held in U.S. financial institutions by residents of Japan.
Multilateralism

Swiss: None explicitly noted.

Japan: Willing to work on multilateral effort to develop common model for automatic exchange of information, common reporting, and due diligence standards.
F. The United States and Japan would be willing to work with other FATCA partners and the OECD in the medium term on developing a common model for automatic exchange of information, including the development of reporting and due diligence standards. Such collaboration ultimately would enhance compliance and facilitate enforcement to the benefit of all parties. The United States and Japan are cognizant of the need to keep compliance costs as low as possible for financial institutions and other stakeholders and are committed to working together and with other cooperative jurisdictions over the longer term towards achieving common reporting and due diligence standards.
F. In light of these considerations, Switzerland and the United States declare their intent to negotiate an agreement providing a framework for cooperation to ensure the effective, efficient, and proper implementation of FATCA by financial institutions located in Switzerland.Statement of Intent

Both: Agree to explore a framework for intergovernmental cooperation.

Swiss: Effective, efficient, and proper implementation of FATCA.

Japan: Facilitate the implement of FATCA and improve international tax compliance based on the existing bilateral tax treaty between the U.S. and Japan.
Statement of Intent

Both: Agree to explore a framework for intergovernmental cooperation.

Swiss: Effective, efficient, and proper implementation of FATCA.

Japan: Facilitate the implement of FATCA and improve international tax compliance based on the existing bilateral tax treaty between the U.S. and Japan.
II. Key Elements of the Swiss-U.S. FrameworkNotesII. Key Elements of the Japanese-U.S. Framework
A. The United States and Switzerland would enter into an agreement (the “Cooperation Agreement”) pursuant to which, subject to certain terms and conditions, Switzerland would agree to:Contracting Entities

Swiss: Swiss government and U.S.

Japan: U.S. Treasury, IRS and Japanese Ministry of Finance, National Tax Agency, and the Financial Services Agency.
A. The U.S. authorities (the Treasury Department and the Internal Revenue Service (IRS)) and the Japanese authorities (the Ministry of Finance (MOF), the National Tax Agency (NTA), and the Financial Services Agency (FSA)) would agree to a Framework pursuant to which, and subject to certain terms and conditions:
1. Direct all Swiss financial institutions, not otherwise exempt or deemed compliant pursuant to the Cooperation Agreement, to conclude an FFI Agreement with the U.S. Internal Revenue Service (IRS).

2. Enable these Swiss financial institutions to comply with the obligations prescribed by the FATCA rules and set forth in such FFI Agreements, in particular regarding the reporting of information with respect to U.S. accounts to the IRS, by granting an exception from Article 271 of the Swiss Criminal Code.
FFI Agreements

Swiss: All Swiss FFIs will be required to enter into an FFI Agreement directly with the IRS, and specifically would be able to report U.S. accounts to the IRS.

Japan: No FFI Agreements. Japanese FFIs would be directed to register with the IRS, comply with FSA guidance consistent with FATCA, and directly report U.S. account holders and the aggregate number and value of accounts held by RAHs.
1. The Japanese authorities would agree to:

a. Direct and enable financial institutions in Japan, not otherwise exempt or deemed compliant pursuant to the Framework, to register with the IRS and confirm their intention to comply with official guidance issued by the FSA that is consistent with the obligations of participating FFIs under FATCA, including: (i) applying the due diligence rules prescribed under FATCA to identify U.S. accounts; (ii) annually reporting, in the time and manner prescribed by the FATCA rules, the information required with respect to identified U.S. accounts directly to the IRS if consent is obtained from the U.S. account holders; and (iii) annually reporting, in the time and manner prescribed by the FATCA rules, the aggregate number and aggregate value of accounts held by recalcitrant account holders to the IRS.
3. Accept and promptly honor, as foreseeably relevant without regard to any other condition, a group request by the U.S. competent authority for additional information about U.S. accounts identified as recalcitrant and reported by Swiss financial institutions on an aggregate basis, pursuant to Article 3 of the Protocol signed on September 23, 2009.Additional information on RAHs

Both: Additional information regarding RAHs identified by Swiss or Japanese FFIs to be provided upon request under existing exchange of information protocols or treaty provisions.

Swiss: Limits additional information to that which is “foreseeably relevant.” This limitation is generally intended to prevent broad requests or “fishing expeditions.”
b. Accept and promptly honor group requests made under the Framework by the U.S. competent authority for additional information about U.S. accounts identified as recalcitrant and reported on an aggregate basis by Japanese financial institutions. The Japanese competent authority would obtain the requested information from the identified Japanese financial institution and promptly exchange the information with the U.S. competent authority under Article 26 of the Convention Between the Government of the United States of America and the Government of Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income, signed on November 6, 2003, at Washington, DC.
B. In consideration of the foregoing, the United States would agree to:2. The U.S. authorities would agree to:
FFI Agreement Elimination

Swiss: Not applicable as Swiss FFIs will be directed to enter into FFI Agreements rather than registering.

Japan: Japanese Registered or exempted FFIs would not be required to enter into FFI Agreements with the IRS.
a. Eliminate the obligation of each FFI in Japan to enter into a separate comprehensive FFI agreement directly with the IRS, provided that each FFI is registered with the IRS or is excepted from registration pursuant to the Framework or IRS guidance;
1. Identify in the Cooperation Agreement, specific categories of Swiss FFIs or schemes (in particular certain small, local FFIs and institutions/schemes in the field of the Swiss pension system) that would be treated as deemed compliant or exempt;Deemed Compliant and Exempt Entities

Both: Both Frameworks permit identification of financial institutions which would be treated as deemed compliant or exempt and specify slight differences in examples.

Japan: Japanese exemption would be due to a financial institution presenting a low risk of tax evasion.
b. Identify in the Framework specific categories of Japanese financial institutions or entities (including in particular certain Japanese Pension funds) that would be treated as deemed compliant or exempt due to presenting a low risk of tax evasion;
2. Eliminate U.S. withholding under FATCA on payments to Swiss financial institutions (i.e., by identifying all Swiss financial institutions as participating FFIs or deemed-compliant FFIs, as appropriate); andWithholding on Contracting State’s FFIs

Swiss: Eliminate U.S. withholding under FATCA on payments to Swiss financial institutions by identifying all Swiss financial institutions as participating FFIs or deemed compliant FFIs.

Japan: Eliminate U.S. withholding under FATCA on payments to FFIs fulfilling their obligations under the Framework in Japan (i.e., to be identified as participating FFIs, deemed compliant FFIs or exempt).
c. Eliminate U.S. withholding under FATCA on payments to Financial Institutions in Japan that have registered or entered into an FFI agreement with the IRS and conduct due diligence and reporting in a manner consistent with FATCA requirements or are treated as deemed compliant or exempt pursuant to the Framework (i.e., by identifying all such financial institutions as participating FFIs, deemed-compliant FFIs or exempt as appropriate); and
3. Agree to certain other appropriate measures to reduce burdens and simplify the implementation of FATCA.Agreement to Reduce Administrative Burdens

Both: Agreement to reduce burdens and simplify.
d. Provide certain other measures to reduce burdens and simplify the implementation of FATCA.
C. In addition, as a result of the Cooperation Agreement, Swiss financial institutions would not be required to:B. In addition, as a result of the Framework, financial institutions in Japan that comply with their obligations would not be required to:
1. Terminate the account of a recalcitrant account holder;Account closure

Both: Identical – not required.
1. Terminate the account of a recalcitrant account holder; or
2. Impose foreign passthru payment withholding on payments to recalcitrant account holders, or to other financial institutions in Switzerland, or in another jurisdiction with which the United States has in effect either an agreement for an intergovernmental approach to FATCA implementation, or an agreement for intergovernmental cooperation to facilitate FATCA implementation.Passthru and Foreign Passthru Payment Withholding

Swiss: Implies that FFIs in Switzerland will be required to withhold on U.S. source payments made to RAHs and non-participating FFIs, but will not be required to impose withholding on foreign passthru payments to RAHs, Swiss FFIs. Swiss FFIs will be required to impose foreign passthru payment withholding on non-participating FFIs of countries which have not entered into an IGA or Framework agreement with the U.S.

Japan: FFIs in Japan will only be required to impose passthru payment withholding on non-participating FFIs of countries which have not entered into an IGA or Framework agreement with the U.S.

Note: IGA (Model I) eliminates withholding on passthru payments (similar to Model II-Japan).
2. Impose passthru payment withholding on payments to recalcitrant account holders, to FFIs organized in Japan that have registered or entered into an FFI agreement with the IRS, or are otherwise exempt or deemed compliant, or to FFIs in another jurisdiction with which the United States has in effect either an agreement for an intergovernmental approach to FATCA implementation or an agreement such as the Framework for intergovernmental cooperation to facilitate the implementation of FATCA and improve international tax compliance.
D. A model Cooperation Agreement implementing this framework for intergovernmental cooperation to facilitate FATCA implementation will be developed and the terms and conditions established in the model agreement will be applied to Switzerland and other interested countries on an equivalent basis.Develop Model to apply to all Interested Countries

Swiss: Only noted in Swiss version.

Note: See also Multilateralism in General Considerations.
E. The United States and Switzerland agree to work swiftly and constructively to negotiate and conclude a Cooperation Agreement.Agreement to agree

Swiss: Only noted in Swiss version.

Note: See also Statement of Intent in General Considerations.

Note: The Japan version also indicates that U.S. withholding will be eliminated for FFIs that have entered into an FFI agreement with the IRS indicating that FFI’s may have an option to either register with the IRS or sign the agreement. It is unclear whether there are any advantages for a Japanese FFI to sign the agreement over registering as a participating FFI or whether one or the other will be required in certain circumstances. Additionally, the Japan framework indicates that U.S. withholding will be eliminating for registered FFIs (or those that signed) AND to those that conduct due diligence and reporting consistent with FATCA requirements. The difference in language from the Switzerland framework appears to point to an additional due diligence requirement for U.S. withholding agents (“USWAs”) meaning that USWAs may not be able to depend solely on a valid FFI EIN to prevent withholding for an FFI in Japan.

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