Swiss financial institutions will have updated obligations under the US Foreign Account Tax Compliance Act (“FATCA”) beginning in 2027, pursuant to a new intergovernmental agreement (“IGA”) between the United States and Switzerland. Blockchain businesses that are incorporated or resident in Switzerland, including vereins, and that are considered financial institutions should consider these changes and plan for compliance beginning in 2027.
FATCA generally imposes due diligence and reporting obligations on certain foreign financial institutions. FATCA defines the term “financial institution” broadly and includes entities that may not consider themselves financial institutions for other, non-tax purposes. For FATCA purposes, financial institutions include banking and similar businesses, depository institutions, custodial institutions, investment entities, insurance businesses, holding companies and treasury centers within corporate groups that include a financial institution.
The United States has entered into IGAs with 113 foreign jurisdictions. Each IGA implements FATCA in the local jurisdiction and is either a Model 1 or Model 2 IGA. While most jurisdictions entered into Model 1 IGAs, a handful of jurisdictions, such as Bermuda and Switzerland, until the end of 2026, signed Model 2 IGAs.
Under a Model 2 IGA, foreign financial institutions will generally disclose consenting reportable account details directly to the Internal Revenue Service (“IRS”). With respect to non-consenting US account holders, the IRS may request this data through normal administrative assistance channels (e.g., under an applicable treaty’s exchange of information article). In addition, the United States does not transmit data regarding US financial accounts held by residents of the Model 2 jurisdiction to such jurisdiction.
By contrast, foreign financial institutions in a Model 1 IGA must report on US reportable accounts to the local tax authority. Then, foreign jurisdictions transmit FATCA data to the United States. Although two-way FATCA data sharing is not in effect with all Model 1 jurisdictions, the new Model 1 IGA with Switzerland obligates the US to share tax account information of reportable Swiss accounts with Switzerland.
Beginning in 2027, Swiss financial institutions, including blockchain structures that incorporate Swiss entities and/or Swiss vereins, will have reporting obligations regarding their reportable US accounts to the Swiss tax authority. Likewise, US financial institutions may have obligations to identify and report on financial accounts held by reportable Swiss residents.
For further information about the application of FATCA to blockchain structures, please contact a member of Seward & Kissel’s Blockchain Practice.