Double Tax Treaty between Switzerland and Liechtenstein

On 1 January 2017 the new double tax treaty between Switzerland and Liechtenstein (“DTT CH-FL”) entered into force. This treaty facilitates access of Swiss based companies to the EU market (because Liechtenstein is part of the European Economic Area “EEA”) and makes it much more attractive for Liechtenstein based holding companies and individuals to own shares in Swiss companies (due to a reduction of WHT to 0%/15%).

There is an increasing interest in Liechtenstein also as a holding location for companies based in other countries, in addition to the new DTT CH-FL, mainly due to the following characteristics:

  • 0% WHT on dividend, interest and royalty payments paid by Liechtenstein companies based on unilateral Liechtenstein law
  • 12.5% corporate income tax rate, participation exemption and 4% notional interest deduction
  • No CFC-regulation, however correspondence principle for hybrid financing
  • Application of EU fundamental freedoms (goods, persons, services and capital)
  • BEPS conformity (minimum standards implemented on 1 January 2017)
  • Growing network of double tax treaties with major economies (UK, Germany, Austria, Luxembourg, Malta, Singapore, Hong Kong, etc.)

Furthermore, please note that due to the EEA agreement (i.e. the 4 freedoms) and the tax information exchange agreements (TIEAs) with various EU member states no withholding tax should be applied on dividends, interests and royalties received from a subsidiary established in these EU member states.
Due to the on-going BEPS discussions, traditional holding company locations such as Luxemburg, Netherlands and the UK face challenges that were also addressed in Liechtenstein. This is how Liechtenstein meets the challenges:

  • Substance: There is a consensus that local substance will be key to apply double tax treaties. Because Liechtenstein is close to Zurich (approx. 90 min), qualified employees can relatively easy be recruited or shared between Swiss and Liechtenstein based group companies (e.g. with split working contracts). Creating financial substance (i.e. equity financing) is highly attractive for Liechtenstein based companies in the current low-interest environment due to a 4% notional interest deduction.
  • Hybrid mismatch: Because Liechtenstein does not levy WHT on dividends, interest and royalties, there is no need to employ hybrid instruments. With the implementation of the correspondence principle for hybrid financing, Liechtenstein meets the BEPS minimum standard (BEPS action 2)
  • CFC-rules/Substantial interest rules: Liechtenstein does not have CFC regulation.
  • Black Lists: Liechtenstein’s efforts in tax transparency (implementation of AEOI, TIEAs with 27 countries etc.) have led to Liechtenstein being removed from the most prominent black lists (e.g. FATF-blacklist and Italian financial transaction tax black list)
  • EU State aid: Since its inception in 2011, the goal of the Liechtenstein tax law has been compliance with EEA regulations. In fact, the EFTA-supervisory authority reviewed certain elements of Liechtenstein tax law in 2011 and 2012 and qualified them as EEA-compliant

In short, Liechtenstein becomes more attractive as an alternative holding structure compared to traditional holding locations. Especially by combining resources already available in Swiss group companies, a robust (i.e. BEPS-compliant) and tax efficient holding company structure can be established in Liechtenstein. There is a so-called “principle purpose test” embedded in the new DTT CH-FL similar to the principal purpose test provision (i.e. general anti-abuse rule) recommended by the OECD. There is not yet any practice available in this respect but we expect the same substance requirements for Liechtenstein holding companies as required by the ESTV for other known holding jurisdictions.

Blog LI - DBA

In case of any questions please contact us:

Brunner_Roman_09544Roman Brunner
PwC | Partner
Office: +41 58 792 72 66
Mobile: +41 79 676 40 63
Email
PricewaterhouseCoopers AG
Vadianstrasse 25a | Neumarkt 5 | 9001 St. Gallen

 

Meyer_Martin_09723_01
Martin Meyer
PwC | Director
Office: +41 58 792 42 96
Mobile: +41 79 348 36 13
Email
PricewaterhouseCoopers GmbH
Austrasse 52 | Postfach | FL-9490 Vaduz

Double Tax Treaty between India and Singapore renegotiated

Following the changes of the Double Tax Avoidance Agreements between India and Mauritius and between India and Cyprus, also the treaty between India and Singapore will, effective as from 1 April 2017, switch to a source based taxation for capital gains arising from the transfer of shares acquired on or after 1 April 2017. What that means is – effective 1 April 2017 when a Singapore resident sells Indian equity shares, acquired on or after 1 April 2017, the capital gains arising on such a transaction will – as in the case of Indian investments held through other jurisdictions (apart from the Netherlands; see below) – be taxable in India.

Out of the former Quadriga (i.e. Singapore, Mauritius, Cyprus and the Netherlands) providing for advantageous provisions covering the taxation of capital gains arising on the transfer of shares in Indian companies, only the India – Netherlands treaty still provides for an exemption of capital gains from taxation in India, as long as the purchasing party is not an Indian resident.

The India – Netherlands treaty will remain applicable for the time being. It however remains to be seen how long the treaty will remain effective as new negotiations are likely to put pressure on the Netherlands to bring the treaty in line with developments now taking place under the treaty with Singapore, Mauritius and Cyprus. If investments into India through the Netherlands seem to be too risky in view of potential future changes to the double tax treaty as mentioned above, then holding investments into India directly by Switzerland might be a realistic alternative. In any case, future investments into India require careful planning.

Read more in the Tax Insights “Double taxation avoidance agreement between India and Singapore renegotiated”.

We are happy to discuss any questions you have, please feel free to contact Norbert Raschle or Roger Wetli anytime.

Swiss CEOs: digitisation-oriented and optimistic.

PwC’s 20th Annual Global CEO Survey

In this year’s survey, our very special 20th anniversary year, we’ll explore CEO views about the powerful forces of change being brought by technology and globalisation. Swiss CEOs are very optimistic about the growth of their companies. More than 60% of Swiss CEOs consider themselves to be highly digitisation-oriented. Digitisation will continue to transform companies and the sectors in which they operate.

urs_honeggerUrs Honegger
CEO PwC Switzerland

 

More than 60% of the Swiss CEOs see themselves as very digital oriented. The issue of cybersecurity is more important to them than 2016. Digitization will further transform companies and their industry. The Swiss CEOs are very confident about the company’s growth. As employees, they are looking for innovative talents with emotional intelligence. These are some results of the “20th Annual Global CEO Survey 2017” by PwC, for which 1379 CEOs were interviewed.

Click here to get to the CEO Survey

swiss keyfindings_ceo-survey-2017-switzerland-highlights-small

 

 

 

 

 

 

Find out what Swiss CEOs told us about the past and future

Contact us

Claudia Sauter
Head of PR & Communications
PwC Switzerland
E-Mail

Kevin Högger
Markets & Growth
PwC Switzerland
E-Mail

Outsourcing – Banks and Insurers: complying with FINMA requirements

Revised circular on outsourcing published

On 6 December 2016, the Swiss Financial Market Supervisory Authority (FINMA) published a revised version of the circular (FINMA circ.) 2008/7 “Outsourcing Banks” under the new name 2017/xx “Outsourcing – Banks and Insurers”. This is subject to a hearing lasting until 31 January 2017. It is scheduled to enter into force on 1 July 2017 and applies to all banks, financial groups, securities dealers and now also to insurers, regardless of their size or supervision category.

Significant changes concern internal outsourcing, outsourcing abroad and embedding in the Data Protection Act. For explanations relating to individual areas, please consult the link.

Read also our Insurance Hot Topic Flyer here.

Release of the FINMA Circular 2017/xx “Outsourcing – banks and insurers”

The FINMA Circular 2017/xx “Outsourcing – banks and insurers” has been released for consultation and is open to comment until 31 January 2017.

It is the first FINMA Circular to regulate outsourcing by insurance companies and it aims to harmonise the regulatory requirements for outsourcing projects of banks, (re)insurance companies and securities dealers in a single circular.

Follow this link to our Insurance Hot Topic Flyer for a summary of the key points of this draft revised circular and the impact it will have on FINMA regulated institutions.

Read the Flyer

For information on this topic specific to the Banking industry, please refer to the following blogpost.

Please do not hesitate to contact us.

Philip Kirkpatrick
Insurance Risk and Regulatory Leader
+41 58 792 23 61
philip.d.kirkpatrick@ch.pwc.com

Robert Borja
Insurance Risk and Assurance Leader
+41 58 792 29 56
robert.borja@ch.pwc.com

PwC Deal Talk – Doing Deals in Canada

Edition: 1/2017

DealTalk_E1

Canada is an important trade partner for Switzerland. In 2015, Swiss exports to Canada amounted to USD 3.4 bn and mainly consisted of pharmaceutical products, organic chemicals, scientific and precision instruments, machinery and equipment, clocks, watches and parts. Moreover, with a total invested capital of USD 8.9 bn at the end of 2015, Switzerland is also among the ten biggest foreign investors in Canada.

The current weak Canadian Dollar offers attractive investment opportunities for Swiss investors. While the Canadian market has some similarities to the US and European market, there are some unique features that investors need to be aware of. With first-hand experience and local teams on the ground, PwC can help you to avoid common pitfalls when doing deals in Canada.

Read the PwC Deal Talk

 

Please do not hesitate to contact us.

Sascha Beer
Partner
Corporate Finance / M&A
+41 58 792 15 39
sascha.beer@ch.pwc.com

Michael Huber
Senior Manager
Corporate Finance / M&A
+41 58 792 15 42
michael.huber@ch.pwc.com

Swiss pensions – hot topics for employers in 2017 and beyond

2017 will offer up further challenges and questions for companies on their Swiss pension plans. We highlight five of the key discussion points:

  1. Valuing pensioner obligations

Reported funding levels remain at what appear to be good levels. But this doesn’t tell the full story. One key driver of funding levels is the technical interest rate used to value pensioner obligations. This rate is chosen by the fund board and not linked to market conditions.

Falls in long-term bond yields imply that future long-term returns available to funds are lower now than they were in the past. Funds need to consider updating their interest rate to reflect this. If they don’t go far enough, the value of obligations will be understated.

  1. Falling bond yields have driven up bond asset values – beware the mismatch

Despite a rebound in the last quarter, the fall in bond yields over 2016 means that some asset classes rose in value, especially bond and fixed interest assets, which increased by around 5%. At lower interest rates, property rental income streams have a higher valuation and cheaper mortgages inflate valuations.

Some funds will be tempted to reward members for this “positive” news with giving higher interest on their accounts. The mismatch between how assets are valued (based on market principles) and obligations (based on selected assumptions) means that the true picture of a pension fund is not obvious on the surface. Decisions need care as a result.

pwc_issues for 2017

  1. Growing interest in real estate assets needs caution

2016 saw continued interest in property as an asset class for pension funds. There are many good reasons for Swiss funds to invest in real estate. They offer stable income and are illiquid long-term assets. This can suit long-term investors like pension funds.

Property should have a role to play in any diversified asset portfolio. But history shows that economic shocks hitting the property market can come at any time. A friend once told me “Swiss property prices never go down” – such statements raise alarm bells as people tend to forget the real estate crisis in Switzerland in the early 1990s! Pension funds need to be watchful.

  1. 1e pension plans – new law brings opportunity for employees and sponsors

So-called 1e pension plans allow individuals to choose their own investment strategy for their savings on earnings above CHF127K. A new law governing these plans is expected to come out in the first half of this year.

The law will remove risks for employers. As past rights can transfer, this could mean lower balance sheet liabilities for IFRS and US GAAP reporters as defined contribution accounting should be possible. 1e gives employees the opportunity to fit their savings strategy to their own needs – whether that is a conservative and balanced portfolio like current funds or something more aggressive.

  1. New focus IFRS reporting for pensions

The risk-sharing nature of Swiss plans does not fit well within IFRS today. Some of the benefits of plans are linked to fund performance (e.g. interest credited and retirement conversions) so risk is shared between employer and employees.

2017 should see the introduction of new ways to address this challenge. These options will give companies the opportunity to better reflect the nature of their plans in the financial position. This will lead to some fundamental questions for companies: What will happen if there is underfunding? Will employees be asked to contribute? How will we manage changes to benefits?

Like its predecessors, 2017 promises to be another challenging year in Swiss pensions.

Download here the PDF version.

Update: New confirmations required for 2016 taxation of German cross-border commuters’ pensions

Following a ruling by the German Federal Supreme Finance Court in Karlsruhe at the end of July last year, Germans who commute to Switzerland for work are about to see a change in the way their pensions are taxed. The law governing taxation of contributions and benefits from mandatory occupational benefit schemes in Switzerland (BVG, often simply referred to as pension funds) is to be amended. This will particularly affect employees with an extra-mandatory pension cover. The changes will enter into force for the 2016 fiscal year. Those affected will need a new confirmation to be able to declare their income tax correctly.

Germans commuting to work in Switzerland are basically covered by the BVG if they are subject to mandatory federal old-age and survivors’ insurance (AHV/AVS) and meet the age and pay requirements for admission to a BVG benefits scheme. So far the German tax authorities have not required any special certification or confirmation from the Swiss pension fund. It’s quite a different matter when it comes to child allowances, daily sickness benefits insurance contributions and other areas.

Read more…

Invitation Webcast: US Tax Reform and Impact on Companies Investing in the US

Wednesday, January 18, 1:00 pm.- 2:00 pm ET

Online registration

Whatever your resolutions, the start of a new year offers opportunities for new beginnings and improvements. As you look at 2017 and what’s ahead for your business, PwC’s Doing business in the United States can help guide you through the US tax system as you invest or expand your investments in the United States.

Wondering what’s the outlook for the US tax system this year? Join PwC for a closer look at tax reform and other tax policy issues specific to global companies investing in the United States.

When: 
Wednesday, January 18, 1:00 pm.- 2:00 pm ET

What:

  • How is the US tax system unique?
  • What is the process of transforming tax reform into US law?
  • What are the option for tax reform and how do they compare and contrast (Camp plan, Trump proposal, Republican Blueprint)
  • What are the consequences for US inbound companies, from interest
    educibility, treatment of intangibles, state taxes, and border adjustability?

Speakers:

  • Chris Kong, US Inbound Tax Leader
  • Peter Merrill, US National Economics and Statistics Principal
  • Pam Olson, US Deputy Tax Leader & Washington National Tax Services Leader
  • Oren Penn, US Inbound Tax and International Tax Services, Principal

For further details please refer to our registration page.

Swiss-US Privacy Shield: New Framework for the Transfer of Data to the USA

The so-called Swiss-US Privacy Shield replaces the Safe Harbor Agreement between Switzerland and the USA. The agreement establishes a new regulatory framework for the transmission of personal data from Switzerland to certified companies domiciled in the US. The same standards will apply for Swiss transfers of personal data to the USA as for data transfers from the EU.

Swiss data protection legislation stipulates specific requirements for the transfer of personal data abroad. They protect the personality and the rights of the data subjects concerned. However, the US is not deemed to provide an adequate level of data protection in terms of Swiss law. Swiss companies therefore have to take specific measures to safeguard personal data when it is transferred to the US.

Until recently, Swiss companies could rely on the Swiss-US Safe Harbor Agreement. After the Court of Justice of the European Union declared the EU-US Safe Harbor Agreement invalid, the Swiss Federal Data Protection and Information Commissioner (FDPIC) put the Swiss-EU Safe Harbor Agreement into question.

In August 2016, the EU and USA put into place a successor agreement, the EU-US Privacy Shield. Switzerland also entered into negotiations with the USA, which resulted in the Swiss-US Privacy Shield.

Enhancing the Application of Data Protection Principles, New Tasks for the FDPIC
The agreement is expected to substantially improve the position of those concerned by personal data transfers. The application of data protection principles by participant companies should be enhanced, as should the management and supervision of the framework by the US authorities. Cooperation between the US Department of Commerce (DOC) and the Federal Data Protection and Information Commissioner (FDPIC) should be intensified. The persons concerned are being given specific instruments to enable them to find out about data processing directly from certified US companies or the competent authorities, and to ensure that any required corrections or deletions are made. For example, the FDPIC will act as a point of contact for persons in Switzerland in the event of any problems in connection with the transfer of data.

Same Conditions as in the EU for the Transmission of Personal Data to the US
The new regulatory framework corresponds to the solution adopted by the USA and the EU and implemented within the European Economic Area (EEA) – the EU-US Privacy Shield. The similarity is highly significant, as it guarantees the same framework conditions for persons and businesses in Switzerland and the EU/EEA area in relation to transatlantic data flows. The same standards therefore apply for Swiss personal data transfers to the USA as for data transfers from the EU. This increases legal certainty in commercial transactions and reduces additional costs for the economy.

Need for Action for Companies
US companies can start the certification process with the DOC three months after the finalization of the agreement. Interested US companies are advised to obtain a Privacy Shield Certificate from the DOC. Swiss companies should make sure that their US partners possess such a certificate. These conditions are essential for Swiss companies to submit personal data to the US without requiring additional contractual guarantees. Furthermore, companies should review their current contractual basis for data transfers to the US and adapt it to the Swiss-US Privacy Shield where required.