updated 10:36 PM CET, Dec 3, 2022

U.S. and Switzerland tax deal finally ratified after Congress finally approves it

U.S. and Switzerland tax deal finally ratified after Congress finally approves it US Embassy photograph

The U.S. Treasury Department on Friday announced that a long-in-the-works tax treaty with Switzerland has at last been signed and has entered into force, alongside a tax deal with Luxembourg.

The tax treaty had originally been approved by the Swiss Parliament in June, 2010, but had been held up on the U.S. side over concerns that it potentially violated the privacy of individuals whose information, under the agreement, will now be freely exchanged. 

The deal means that Washington will now be in a position to request information from the Swiss authorities on American accounts going back ten years.

In a statement on Friday, the Treasury Department said the two protocols would bring the existing tax treaties that the U.S. already has with Luxembourg and Switzerland "into closer conformity with current U.S. tax treaty policy, to allow for greater tax information exchange that will enhance efforts to bolster tax compliance and combat tax evasion."

The protocols with Luxembourg and Switzerland – in addition to protocols with Japan and Spain that were also signed recently – are the first updates to to the U.S.'s income tax treaty regime in nearly 10 years.

The two agreements were approved by Congress earlier this year, according to the Treasury Department statement. 

The U.S. Embassy in Bern – which is also represents U.S. interests with Liechtenstein – on Friday also issued a statement announcing the tax deal, and a photograph showing U.S. Ambassador Edward McMullen (above, left) shaking hands with Switzerland's State Secretary for International Finance at the Federal Department of Finance, Daniella Stoffel. In its statement, the Embassy called the tax deal "a milestone in tax relations between Switzerland and the U.S.A."

'Modern international standards for
information exchange'

The "Luxembourg Protocol" and "Switzerland Protocol," as the agreements are formally called, incorporate what the U.S. government calls "the modern international standards for exchange of information" between the signatory countries' tax administrations. The Protocol to the 1996 income tax treaty between the United States and Luxembourg came into force on September 9, 2019, upon the delivery of a "diplomatic note by the United States", while the Switzerland Protocol took effect on Friday at a ratification meeting in Bern. 

In addition to modernizing the rules governing the information exchange between the U.S. and Switzerland, the Switzerland Protocol also provides for mandatory binding arbitration to expedite dispute resolution between the tax authorities of each country, the Treasury Department statement noted. 

A key clause removes a distinction that has existed until now between tax evasion and tax fraud in both individual and group requests for exchange of tax information, which is expected to make it easier for the U.S. to obtain information from Switzerland that could be relevant to U.S. taxes.