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Almost out of the Woods

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Almost out of the Woods 29 Number of partner states 80 with which Switzerland JURISDICTIONS: has agreed to theAutomatic Exchange of Information SWITZERLAND Almost out of the woods Switzerland has undergone and is still undergoing rapid and profound changes in order to safeguard and improve the country’s competitive tax and business environment. Dimitri M. Rotter and Catherine Morf report Shutterstock.com This article surveys the key develop- Exchange of Information (AEOI). On dard (CRS). As of June 2017, 101 ments affecting the tax laws relevant 1 January 2017, the Administrative jurisdictions have committed to for wealth management structures Assistance Convention, the Multilat- implement the CRS in their domestic with an exposure to Switzerland. eral Competent Authority Agreement, law (so-called “participating jurisdic- The highlighted changes relate to the Federal Act on the AEOI, the Ordi- tions”) by signing the Multilateral the introduction of the automatic nance on the International Automatic Competent Authority Agreement on exchange of information for 2017 Exchange of Information in Tax Mat- the Automatic Exchange of Financial with a first exchange in autumn 2018, ters as well as the final version of the Account Information (MCAA). Aside the introduction of the spontaneous AEOI Guideline entered into force. from Switzerland, almost 100 states, exchanges of rulings in tax mat- The Interest Savings Agreement including all major financial centres, ters with actual exchange as from 1 between Switzerland and the EU have declared their intention to adopt January 2018 and the initiation of is replaced with the new global the standard. the consultation of the so called tax AEOI standard. The withholding tax Unlike in most jurisdictions, in proposal 17, the tax reform package exemption on dividends, interest Switzerland the AEOI is not already replacing the corporate tax reform and royalty payments for group activated with the signing of the III that was rejected in a public ref- companies located in the EU, which MCAA but it is activated separately erendum by the Swiss voters in Feb- was included in the Interest Savings with each individual participating ruary 2017. Agreement, is however still appli- jurisdiction on a bilateral basis. Tax Proposal 17 aims to implement Dimitri M. Rotter cable. To date, Switzerland has agreed to (top) is a partner appropriate measures to replace the with Froriep Legal The purpose of the AEOI is to the AEOI with 80 partner states privileged tax regimes that have to AG, heading its tax reduce the possibility of tax evasion (including the 28 EU member states). be abolished. The introduction of practice and is a by holding assets abroad – either Thereby, with the EU and nine other the spontaneous exchange of tax certified Swiss tax directly in the name of an individual partner states (Australia, Canada, expert and attorney rulings together with the abolition at law. or indirectly in the name of a com- Guernsey, Isle of Man, Iceland, Japan, of harmful tax regimes, Switzerland pany, partnership, trust or founda- Jersey, Norway and South Korea) implements the BEPS minimum Catherine Morf is a tion. Switzerland starts to collect informa- Counsel with Froriep standard on Action 5. Legal AG, a certified To achieve that goal, the Organisa- tion in 2017 with a first exchange of Swiss tax expert and tion for Economic Co-operation and information in September 2018 (wave AUTOMATIC EXCHANGE attorney at law. Development (OECD) has developed 1), with all the other jurisdictions one OF INFORMATION a single global AEOI standard for year later (wave 2) (for a complete Switzerland implemented the financial account information – the list of countries please see the fol- domestic legal base for the Automatic so called Common Reporting Stan- lowing link: www.sif.admin.ch/sif/ www.offshoreinvestment.com Offshore Investment November 2017 30 JURISDICTIONS: “Until the new corporate tax SWITZERLAND reform legislation enters into force, the current tax privileges should generally remain available” en/home/themen/internationale- other persons qualifying as Financial 4. Permanent establishment rul- steuerpolitik/automatischer-infor- Institutions (e.g. discretionary asset ings concerning the existence or mationsaustausch.html). managers or a trustee service pro- absence of and the attribution of CRS requires Swiss Financial Insti- vider company). Further, the persons profits to a permanent establish- tutions (i.e. banks, brokerage firms, to be reported should ensure that ment in the country issuing the specified insurance companies and they are fully tax compliant in their ruling; investment entities) to report infor- residence jurisdictions. If necessary, 5. Related party conduit rulings. mation on accounts held by persons appropriate actions should be taken The scope of rulings to be (individuals or companies domiciled immediately. exchanged as defined in the appli- in an AEOI partner state) or by pas- cable ordinance on administrative sive non-financial institution (such as EXCHANGE OF assistance in tax matters is quite domiciliary companies, partnerships, TAX RULINGS generic and thus potentially broader trusts and foundations to which a Switzerland implemented the than the above list according to BEPS look-through approach applies) to domestic legal base for the sponta- action 5. Accordingly, it cannot be the Swiss Federal Tax Administration. neous exchange of rulings in tax mat- excluded that further types of rul- For passive ters and of other ings are being included during the non-financial relevant informa- implementation phase. For example institutions, the THE SCOPE OF tion based on the rulings about tax treatment of financial institu- Multilateral Con- individuals are outside the scope tion is required to RULINGS TO BE vention on Mutual of action 5, but are not explicitly not only report the EXCHANGED Administrative excluded by the Swiss ordinance.. information about AS DEFINED IN Assistance in Tax What is being exchanged is an the company, Matters (MAC). It OECD-designed template with partnership, trust THE APPLICABLE entered into force relevant information but not the or foundation but ORDINANCE ON on 1 January 2017. actual tax ruling. The model form also information The spontaneous contains, among others the ruling about its Control- ADMINISTRATIVE exchange of tax reference number, the identification ling Person(s). Pure ASSISTANCE IN TAX rulings takes place of the taxpayer, the date of issuance, wealth manage- as from 1 January the accounting period / tax years ment structures MATTERS IS QUITE 2018. covered in the ruling, an indication are most likely to GENERIC The wording in of the type of ruling and additional either qualify as the MAC is very information and short description of passive non-finan- broad and leaves the ruling’s content. cial entities or as financial institutions open a wide space for interpreta- Clearly in scope are all tax rulings (professionally managed investment tion. The spontaneous exchange of issued after 1 January 2018 but also entity). information is also the instrument to all tax rulings issued since 2010 and Controlling Persons must hence be exchange tax rulings as required by which are still in force in 2018. Not in identified and reported by the Finan- the OECD’s so-called BEPS Action 5, scope are therefore tax rulings issued cial Institutions. addressing certain harmful tax prac- since 2010 but which are terminated Provided that the residence country tices of companies. BEPS Action 5 before 1 January 2018 either based is a partner state of Switzerland, the foresees the following five categories on the wording of the ruling or Federal Tax Administration then of tax rulings to be in scope of the based on a specific request by the tax transmits the information to the spontaneous information exchange: payer. account holders’ and Controlling 1. Taxpayer-specific rulings Clearly in the scope of exchange Persons’ countries of residence on an regarding privileged tax regimes are all tax rulings for the privileged annual basis. (for Switzerland these are holding, tax regimes of holding, mixed or It is important that all persons domicile and mixed and prin- domiciliary companies as well as involved in wealth management cipal company regimes, finance finance branches and principal structures are aware of who has to branches); companies. Since holding, mixed be reported and of who has which 2. Cross-border unilateral advance and domiciliary regimes are clearly reporting obligations. It should also pricing agreements (“APAs”) cov- defined in the law, in standard situ- be evaluated whether it would be ering transfer pricing; ations it is possible to withdraw the beneficial if a wealth management 3. Downward adjustment rul- ruling by the end of 2017 and never- structure itself were to report as a ings concerning a downward theless be taxed according to these financial institution (as a profession- adjustment to the taxpayer’s tax- special regimes (as long as they are ally managed investment entity) able profits that is not directly in force, see below Tax Proposal 17). rather than to leave the reporting to reflected in the taxpayer’s financial Finance branches and principal the account-keeping banks and/or to accounts; structures though, are mostly more Offshore Investment November 2017 www.offshoreinvestment.com 31 Proportion of Swiss voters who 59.1% rejected the draft legislation of JURISDICTIONS: Corporate Tax Reform III in a February 2017 referendum SWITZERLAND complex and it will be difficult to ally, a large number of cantons offer in proportion to the equity repre- handle them without specific ruling. the possibility for a step-up of hidden sented by participations and patents reserves and goodwill upon the vol- and similar rights qualifying for the TAX PROPOSAL 17 untary transition from a privileged patent box, a limitation of the quali- The EU and the OECD have put pres- tax regime to ordinary taxation fying dividend relief for individuals sure on Switzerland to give up privi- already under their current tax laws. to 30% and an increase of the min- leged tax regimes for holding, mixed 2.
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