New Corporate Tax Package Released by the European Commission

On 25 October 2016 the European Commission (EC) presented its new package of corporate tax reforms. The package consists of the following four proposed draft tax directives, which are expected to have a significant impact on the European operations of MNCs, if finally adopted:

  • Common Corporate Tax Base (CCTB)
  • Common Consolidated Corporate Tax Base (CCCTB)
  • amendment of the Anti-Tax Avoidance Directive (ATAD) so that it also regulates mismatches with third countries
  • dispute resolutions mechanisms in the EU (Dispute Resolution Directive)

Proposed CCTB/CCCTB Directives 

With the adoption of the two proposals on CCTB and CCCTB the original 2011 CCCTB EC proposal is withdrawn. In the re-launched CCTB, Member States shall agree on and implement a common taxable base in a first step with consolidation coming later as a second step. The Member States continue to apply their own national corporate tax rates.

These rules are planned to be mandatory for EU tax-resident companies (including PEs of non-EU companies) belonging to a consolidated group for financial accounting purposes whose total consolidated group revenue exceeds EUR 750m. SMEs and start-ups with turnovers below this threshold will get the possibility to opt-in. If adopted, these CCTB rules should become effective as of 1 January 2019.

Once the Member States have agreed on the proposed common base (CCTB), they can proceed with the consolidation part of the proposals (CCCTB). If adopted, these CCCTB rules should apply as of 1 January 2021.

Proposed Dispute Resolution Directive

The Commission has further proposed that current dispute resolution mechanisms should be adjusted to better meet the needs of businesses. In particular, a wider range of cases will be covered and Member States will have clear deadlines to agree on a binding solution to double taxation. If adopted, these rules would apply as of 1 January 2018.

Proposed Directive on hybrid mismatches with third countries

The third proposal in the EC’s new package amends the Anti-Tax Avoidance Directive (ATAD) and incorporates minimum standards provisions relating to hybrid mismatches with third countries. If adopted, these rules would apply as of 1 January 2019.

Next steps

All four Directives in principle require the unanimous consent from all EU Member States in the ECOFIN. It remains to be seen whether this can be achieved and whether amendments to the proposed measures need to be done and/or whether some of the measures may need to be dropped. It further remains to be seen whether a group of Member States which are in favour of the proposals, may seek to take the initiative forward under the so-called “enhanced co-operation mechanism”.

Multinationals with operations in the EU should carefully monitor these developments.

For more details please refer to the PwC Newsalert from our EU network as well as the EC’s press release.

For further advice please contact:

Armin Marti
Partner, Corporate Tax / International Tax and Transfer Pricing
+41 58 792 43 43

Anna-Maria Widrig Giallouraki
Senior Manager, Tax & Legal Services
+41 58 792 42 87



Refund of Withholding Taxes to Life Insurance Companies: Finnish Supreme Court Decision in favour of Luxembourg Life Insurance Company

A recent decision of the Finnish Supreme Administrative Court (SAC) signifies a further positive development for the refund of withholding taxes to life insurance companies (unit-linked).

In particular, the SAC decided earlier this year (SAC: 2016:77) on the taxation of Finnish source dividends received by a Luxembourg life insurance company (LuxCo) on its unit-linked products. The SAC concluded that based on the fundamental freedom of movement of capital (Article 63 of the Treaty on the Functioning of the European Union “TFEU”) the LuxCo should be entitled to tax deductions with respect to its Finnish source dividend income.

The case can be summarised as follows:

  • According to Finnish tax law and the applicable Finland/Luxembourg double tax treaty, dividends payable to LuxCo relating to its unit-linked life insurance products are taxable at a rate of 15% on their gross amount. If the same dividend income would have been received by a comparable Finnish life insurance company, this would have in principle also resulted in an effective taxation of 15%. However, the Finnish life insurance company is entitled to a tax deduction on the basis of its technical reserve. For unit-linked products there is in principle a significant correlation between the (dividend) income received by the life insurance company in relation to the unit-linked product (taxable income) and the future liability for payments to the policyholder of the unit-linked product (creating a tax deduction in a form of technical reserve). Therefore, if these two items are considered together, the dividend income received by the Finnish life insurance company is generally almost tax exempt and the comparable Luxembourg company is discriminated against (see also next point). The SAC considered the Finnish source dividends received by the LuxCo on its unit-linked products comparable to dividends received by a Finnish life insurance company in relation to its unit-linked products.
  • The SAC also considered that the link between the technical reserve and the dividend income was at least as direct as the link between the deduction of pension funds on their future pension liabilities and received dividend income in the CJEU Judgment C-342/10, Commission vs Finland.
  • After these conclusions the SAC elaborated how the different treatment should be eliminated. Due to differences in Finnish tax law in 2014 and before compared to the subsequent years, the SAC proposed different methods of how and to what extent the discriminatory treatment should be eliminated. For instance, for dividends distributed in 2015 and onwards, the amount of tax deduction for LuxCo was calculated by a) determining the overall amount of technical reserve deduction to which a Finnish comparable company would be entitled and b) calculating a pro rata deduction thereof, corresponding to the ratio of the Finnish source dividends to the total turnover.

The above decision can be considered as a further enhancement of the success chances for recovery or reduction of withholding taxes suffered in the EU by life insurance companies (established within or outside the EU, as e.g. in Switzerland) and their unit-linked products. As far as non-life and non-linked insurance companies are concerned, the situation based on the existing case law appears currently less positive.

As a final concluding remark we note that similar opportunities exist also for other types of taxpayers (e.g. financial institutions) who are generally subject to withholding taxes on their gross dividend/interest income within the EU. Especially in light of positive case law of the Court of Justice of the European Union (“CJEU”), such as e.g. the most recent “Brisal” judgment, we consider that taxpayers have now more possibilities to argue in favour of withholding tax on the net amounts received, after the deduction of business expenses directly related to the activity carried out. In addition, it could be possible to recover withholding taxes incurred in the past years.

For a further discussion and support on the recovery of withholding taxes in the EU for insurance companies, investment funds, pension funds, financial institutions etc. please contact:

Dieter Wirth
Partner, Tax & Legal Services
+41 58 792 4488

Anna-Maria Widrig Giallouraki
Senior Manager, Tax & Legal Services
+41 58 792 4287

Blockchain leaders event – Unbundling the hype (Tuesday, 22 November 2016)

We are pleased to invite you to our upcoming Blockchain event on
Tuesday, 22 November 2016.

No other emerging technology has generated more media buzz in
Switzerland than cryptocurrencies, smart contracts and the underlying
distributed ledger technology. The question is not “if” but “how and
when” to start exploring and getting use of Blockchain technology.
While some perceive the new technology as being overhyped,
industries spanning from banking, insurance, energy, manufacturing to
government have already invested a significant amount to build
Blockchain based prototypes or even solutions.

PwC Digital Services will show real-­life Blockchain prototypes on
stage and critically address the key questions for executives to have
an unbiased roadmap for a successful Blockchain potential analysis
and planning.

  • Business versus technology maturity – What is the current stage of
  • What are the business opportunities for companies in Switzerland?
  • “Play now” or “wait and see” – What is the right time, approach and the
    roadmap to adopt to Blockchain?

PwC Digital Services has invited leading Blockchain experts and
Blockchain start­up founders from EPAM and LegalHub for a fireside
chat on stage, who will share their perspectives on the challenges and
opportunities that lie ahead.

Get more insights here.

Can AGILE enable a full scope transformation approach and realise expected benefits more successfully?

Agile project and programme delivery might be perceived as a silver bullet. However, while some organisations have achieved good results adapting agile practices, others have been struggling to cope with the multiple challenges related to agile delivery – especially at scale. Making it a success requires rethinking the way an organisation manages inevitable change, and above all, it means embedding agile practices in a full scope organisational transformation approach. If an organisation can get it right, the rewards are potentially immense: reduced time to market and rapid realisation of outcomes with highest value and benefits for your customers.

Read more…

New confirmation required for 2016 taxation of German cross-border commuters’ pensions

Following a ruling by the German Federal Supreme Finance Court in Karlsruhe, 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 extra-mandatory pension cover. The changes will enter into force for the 2016 fiscal year. Those affected will need 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. Until now 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 benefits insurance contributions and other areas.)

Read more…

Out of the shadow into the light: A new set of rules for securities financing transactions and collateral – The SFTR

Currently the European Securities and Markets Authority (ESMA) is inviting responses to specific questions listed in draft Regulatory Standards (RTS) and draft Technical Standards (ITS) under SFTR, and amendments to related EMIR RTS, all of which is published on the ESMA website. The responses must be submitted online to ESMA by 30 November 2016.

On 4 October 2016 ESMA has issued a report on securities financing transactions, leverage and pro-cyclicality in the EU’s financial markets. ESMA’s report assesses whether the use of SFTs leads to the build-up of leverage which is not yet addressed by existing regulation, how to deal with such build-up, and whether there is a need to take further measures to reduce its pro-cyclicality.

ESMA’s report was prepared in cooperation with the European Banking Authority and the European Systemic Risk Board. The report recommends to:

  • introduce the Financial Stability Board’s (FSB) qualitative standards in the methodology used to calculate haircuts
  • address the pro-cyclicality of collateral haircuts in central counterparties in the context of the European Market Infrastructure Regulation (EMIR) review
  • assess the possible extension of the FSB’s scope for numerical haircut floors, and the calibration of these floors using SFTR data which will become available in 2018
  • assess pro-cyclicality and the potential need for further policy tools once sufficient data becomes available

In order to be best prepared to cope with the upcoming challenges, we would like to shed some light on SFTR and help you understand the next steps in its implementation.

Read the full newsletter here.

For further information, please contact the
contacts listed below:


Günther Dobrauz
Leader Legal FS Regulatory and Compliance Services
+41 58 792 14 92



Martin Liebi

Senior Manager | Legal FS Regulatory and Compliance Services
+41 58 792 28 86



Michael Taschner
Senior Manager | Legal FS Regulatory and Compliance Services
+41 58 792 10 87



Sahin_Orkan_58434 (2)
Orkan Sahin

Senior | Legal FS Regulatory and Compliance Services
+41 58 792 19 94

Renewed definition of supplies of goods in chain transactions which involve intermediaries

The Commission Services (a working council of the European Commission) has recently published a working paper in which they provide their reasoning as to what makes up a supply of goods as a result of a judgment of the Court of Justice of the European Union (‘CJ EU’). The items discussed in this working paper are relevant for chain transactions in which intermediaries are involved who trade goods they do not actually dispose of as an owner.


The working paper is issued in response to the questions raised by Lithuania on how the Fast Bunkering Klaipėda case of the CJ EU should be explained and applied in practice. Delegates of the EU Member States (who together form the VAT Committee) are now requested to give their opinion on the issues raised by the Commission Services.

Issues raised

The Commission Services are of the view that the outcome of the CJ EU judgment Fast Bunkering Klaipėda court case could not be said to be particular to that specific case, but may also be relevant to other scenarios such as chain transactions.
As explained by the Commission Services, the CJ EU judgment has made clear that a supply of goods for VAT purposes is recognised in case someone is empowered actually to dispose of goods as if he/she were their owner. The (subsequent) transfer of legal ownership to anyone else (if applicable) would therefore, in principle, have to be disregarded. This was apparently the case for Fast Bunkering Klaipėda who supplied goods on a ‘free on board’ basis to an intermediary (who was acting in his own name) but directly loaded the fuel itself into the vessel’s fuel tank of the final recipient. In this situation the intermediary could not actually dispose of the goods as an owner, since at the moment he obtained legal title to the goods, the fuel oil was already loaded into the vessel and put at the disposal of the final recipient.
According to the CJ EU, in such case a direct supply of goods takes place from the first supplier to the final recipient (ignoring the involvement of the intermediary). In the working document the EC now raises the issue that the transaction performed by the intermediary should consequently be regarded as a supply of services, as he is not in the position to supply goods that are already supplied for VAT purposes to the final recipient.

It is noted by Commission Services that in as far as the intermediary acts on behalf of another party, the intermediary is still deemed to have purchased and onward supply the goods. Hence, where a commissionaire is involved, the above should not be applicable.

Impact on businesses

If the above position would be true, the impact on businesses would potentially be significant. In supply chains similar to the one of Fast Bunkering Klaipėda, the first supplier would from a VAT perspective no longer be supplying goods to his direct counterparty, but to the final recipient instead. At the same time, it should be determined to which party the intermediary is rendering its services. Obviously this would have an enormous impact on the invoice flows in the supply chain. Moreover, the intermediary would be forced to disclose his margin (i.e. the fee for his services), which might be an issue in practice.
In our view, the impact on businesses of the Fast Bunkering Klaipėda case and this working paper from Commission Services is limited to those supply chains whereby the transfer of legal ownership takes place at the same time as or after the disposal of the actual ownership takes place. In this respect, it could be questioned whether a transfer of goods to someone empowered actually to dispose of those goods as if he were their owner necessarily takes place at the same time that the goods are physically put at the disposal of a buyer or final recipient.
Particularly in commodity trade vessels might already have left the harbour, whereas the documents that represent ownership of the goods loaded in the vessels (e.g. bills of lading) are distributed throughout the supply chain thereafter. It could be that the Fast Bunkering Klaipėda case and this working paper from Commission Services therefore do not necessarily have an impact, as all parties in the supply chain normally receive (and onward distribute) the documents representing ownership of the goods loaded in the vessel (unless economic reality proves otherwise). This might be different for the situation whereby parties involved in the supply chain establish a so-called ‘string’, based on which a document by-pass takes place from the first supplier to the last recipient in the supply chain. In those circumstances the other parties involved do not receive the documents that represent ownership of the commodities and consequently are not empowered actually to dispose of those goods as if they were their owner. In such case, in principle the other parties necessarily render services to each other. However, we feel that there are situations in which the settlements by the other parties (of the differences between their sales prices and the ‘by pass’ price) could possibly qualify as cash settlements not subject to VAT. This is to be further established on a case by case basis.

Way forward

In order to assess the potential impact of the Fast Bunkering Klaipėda case and the working paper from the Commission Services, we recommend companies to investigate whether they are involved in supply chains whereby the transfer of legal ownership of the underlying goods takes place at the same time as or after the disposal of the actual ownership. If so, a more detailed analysis is required to identify possible issues and establish possible work-arounds. We are happy to assist you in this respect.
Further guidance is to be expected when the delegates of the EU Member States / VAT Committee have given their opinion on the issues raised.

Legal status

Although this working paper and the expected guidelines of the VAT Committee on the basis thereof are no legally binding decisions, they provide guidance on the application of the VAT Directive. It is our experience that EU Member States use such guidance as a starting point for taking their individual position. We will of course inform you accordingly once the view of the VAT Committee has been published.

Renewed definition of supplies of goods in chain transactions which involve intermediaries

Patricia More
Partner, Indirect Tax
+41 58 792 95 07

Julia Sailer
Director, Indirect Tax
+41 58 792 44 57

Brexit from a retail and consumer perspective

R&C Trendwatch - BrexitThe UK’s historic vote on June 23 to leave the EU surprised many, both in Britain and mainland Europe. Businesses are coming to terms with the implications, especially given the uncertainty surrounding the exit process and how this will change the UK’s relationship with the EU and its other trading partners. From a retail and consumer goods sector perspective, the implications are not clear cut. There will be both challenges and opportunities, depending on a company’s structure and the extent to which it relies on access to Europe’s single market for trade and labor. This report describes how the Brexit process is likely to evolve and how Brexit will affect four areas of concern for retail and consumer businesses: the economy, trade, tax, regulation and legislation, and people and organizational strategy.

Download here the full report.

The wait is nearly over – IFRS 17 is coming, are you prepared for it?

We are close to a new IFRS insurance contracts accounting standard. IFRS 17 (previously referred to as IFRS 4 Phase II) is expected to be issued in early 2017 with an effective date of 2021.

IFRS 17 applies to all insurance contracts. The general model is the Building Blocks Approach (BBA) and is based on a discounted cash flow model with a risk adjustment and deferral of up-front profits through the Contractual Service Margin (CSM) which cannot be negative.

  • Changes in the initial building blocks are treated in different ways thus determining Profit recognition:
  • Changes in cash flows and risk adjustment related to future services are recognised by adjusting the CSM, whereas those related to past and current services flow to the P&L
  • The CMS amortisation pattern is based on the passage of time and drives the Profit recognition Profile
  • The effect of changes in Discount rates can either be recognised in OCI or P&L

The IASB has recognised the diversity in insurance contracts and have introduced alternative approaches to address particular features, subject to eligibility criteria as illustrated.

Download the full report here.

FVA – The Price of Money

Before going deeper into the topic of FVA, a brief brush up on some of the underlying theory might be appropriate.

Discounting – or the time value of Money

What is the correct discounting rate? This question is surprisingly more difficult than would be assumed at first glance. Let’s first look at the situation for a price maker.
To establish the correct discounting rate, one way is to think of an opportunity cost argument. If I receive CHF1 in one year’s time instead of today, I can determine the opportunity by borrowing the currency unit for one year in the financial market. The cost of borrowing determines how much less the current value should be compared to the future value of the CHF1. To be precise, the interest rate payments to be incurred would have to be discounted to t-zero at the same interest rate. This works for certain or near certain cash flows.

If future cash flows are risky, a survival probability can be multiplied by the discount factors (DFs), which results in lower DFrisky and hence higher zeroRatesrisky. But this is a different topic with its own specific quirks.

For a price taker (for example a corporate that is trading interest rate swaps with an investment bank), the discounting rate on such products is simply the rate that the bank is using.

The Cost of Funding

TheCostofFundingDuring the financial crisis, it became increasingly clear that LIBOR was in fact not a risk free rate, that it did not represent the funding rate of the banks, and that it had a number of design flaws. The big investment banks were relatively quick to adopt a new regime of using Overnight Indexed Swap (OIS) rates or a similar rate for discounting future cash flows, as this was much closer to the true cost of funding, which was often just overnight borrowing of cash from the respective central bank.
To complicate matters further, it was noticed that the interest rate terms of a Credit Support Annex (CSA), where applicable, would be the most appropriate approximation of the cost/benefit of funding and hence the discounting rate. In older CSAs, this rate could be LIBOR +/– a spread, in newer ones this will often also be something close to an OIS rate.

CSA – Credit Support Annex

A CSA is an addition to an ISDA master agreement that acts as the framework for most OTC derivative transactions. The CSA defines the rules by which collateral is exchanged between the counterparties. The posting of collateral has similarities to the margin required by derivatives exchanges.
These days collateral is mostly cash exchanged between banks; however, it can also be bonds or other securities, depending on what is negotiated between the counterparties.

Jon Gregory (The XVA Challenge, The Wiley Finance Series, 25 September 2015) describes collateral thus: “The fundamental idea of OTC derivative collateralisation is that cash or securities are passed […] from one party to another primarily as a means to reduce counterparty risk.”

Optionality in the Collateral

Up to this point, the FVA can be seen as just the application of a more appropriate discounting curve. However, there are situations which result in more complex adjustments than that.
CSAs can also define more than one form of collateral. This could be several currencies for cash collateral and/or different bonds and other fixed income securities. This creates optionality in the form of a cheapest to deliver option for the party required to post collateral. This is similar to optionality in bond futures. As an example, if counterparty A needs to post collateral to counterparty B and the CSA allows for both EUR and USD (assumed at EURIBOR and LIBOR flat respectively), counterparty A can check if its own funding rate for one of the currencies is cheaper and post in this currency. As this may change over time, both counterparties can post collateral in the cheaper currency and expect that on aggregate the anticipated funding rate under the CSA will be less than any one of the individual currencies.

We can describe the situation by means of these formulas:

Case of two defined collaterals, ignoring the value of the optionality:

FundingRateMin = MIN(collateralRate1, collatreralRate2)

This can be rewritten as:

FundingRateMin = collateralRate1 – MAX(0,collateralRate2 –

The MAX() term describes a spread option which represents the cheapest to deliver option. Its value is strictly > 0, even if the intrinsic value is 0. Hence,

FundingRateMin < collateralRate1
FundingRateMin < collateralRate2

Therefore the FundingRateMin cannot be replicated without option pricing calculations.

If you have any further question feel free to contact Werner Brönnimann or Roman Schnider.