Friday, December 20, 2013

Switzerland: US Expats Told Financial Services No Longer Available to Them

According to Time, many US citizens living in Switzerland have suddenly realized that Swiss banking institutions have declared them persona non grata. 

According to the Geneva-based expatriate advocacy group, American Citizens Abroad (ACA), which follows this issue closely, increasing numbers of US nationals in Switzerland are being denied banking services. 

Yet, according to ACA tax director Jackie Bugnon, the banks may not be totally to blame since they are “being held hostage ny US policies,” which require opening of American-held accounts to the scrutiny of the Internal Revenue Service (IRS). 

The backlash against US clients has been building since 2008, with the news that Switzerland’s largest financial institution, UBS, helped wealthy Americans hide billions of dollars in undisclosed offshore accounts to evade taxes. 

Consequently, UBS had to pay a $780 million fine and release the names of 250 suspected American tax dodgers. In recent years, however, Swiss banks have stepped up their efforts to curb the flow of undeclared money from the US and elsewhere. 

COMMENT: The US is the only developed country that taxes its citizens who live abroad, even if their income is generated in a foreign country and they live abroad permanently. 

Due to the financial burden of double taxation – by their country of residence and the US–growing numbers of US citizens are taking the drastic step of relinquishing their US nationality. 

This year, nearly 2,400 expatriates have given up their US citizenship or turned in their green cards. While this number may seem miniscule, it represents a 33% increase over 2011; experts say the real numbers are much higher because thousands of applications are still waiting to be processed.

Because of its tax policy, the US government has created a myriad of requirements for other nations to follow in order to ensure that no foreign account belonging to a US citizen goes untaxed. 

The latest such regulation is the Foreign Account Tax Compliance Act (FATCA), which was passed by Congress in 2010 and goes into effect on January 1, 2014. It requires foreign banks to report to IRS all the assets exceeding $50,000 that belong to US citizens--whether living in the US or abroad. 

Additionally, in August 2013, Switzerland signed a separate treaty with the US, ending a longstanding tax dispute between the two countries, that also gave the IRS unprecedented access to Swiss accounts held by Americans and US green card holders.

Banks are reluctantly abiding by the new rules because of hefty fines: the IRS can withhold 30% of dividends and interest payments due to the banks from US accounts. Failure to comply with these regulations can seriously impact the Swiss banks’ ability to do business in the US.

“This is very risky for a financial institution because an indictment could bar the bank from the US capital market,” says Sindy Schmiegel, spokesperson for the Swiss Banking Association, an umbrella group for Switzerland’s financial institutions.

Notwithstanding, tens of thousands of US nationals living in Switzerland are denied access to financial services, meaning they have an inability to set up retirement accounts, obtain loans, mortgages, or even rent an apartment.

The denial of bank services is most acute in Switzerland because of the August 2013 agreement it signed with the US, which has accelerated the impact of FATCA. Yet, once the law kicks in worldwide next month, an estimated 7 million Americans who live in other countries are likely to face similar challenges. 

In fact, some have already experienced problems; at an ACA town hall meeting held last week in London, roughly a third of the participants said they either had an account closed already. 

So far, no relief is in sight, although in October, ACA’s executive director Marylouise Serrato wrote a letter to Robert Stack, IRS’ Deputy Assistant Secretary, noting that while the organization supports the government’s efforts to combat tax evasion, banking services would be more accessible to US nationals abroad if financial accounts located and taxed in the country of residence would not be subject to FATCA reporting. Ms. Serrato's letter remains unanswered.

Unfortunately, for US expats, particularly those living in Switzerland, it may be virtually impossible for an American expat to accept a job in Switzerland, or even live in the country, given the fact that financial services are often denied to them.

In its fervor for the Obama Administration to inequitably tax everything earned abroad by US citizens, and be denied basic commercial rights most nationalities take for granted, is an American's only choice but to denounce their US citizenship or surrender their Green card, just so they can open a bank account?