Synopsis of the most important regulatory developments in the banking and asset management industry

Status as of June 2017

The most important regulatory developments with comments to important aspects/changes and status:

  • Interdisciplinary issues
  • Banks/securities dealers
  • Fund management companies/investment funds/representatives of foreign collective investment schemes

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Contact

Bruno Gmür
Technical Partner Financial Services Banking
PwC Schweiz
+41 58 792 7317
bruno.gmuer@ch.pwc.com

FFIs should renew their FATCA agreements by 31 July 2017

IRS reminds FFIs to renew their FATCA agreements on the FFI Registration System

On 7 June 2017, the U.S. Internal Revenue Service (“IRS”) reminded foreign financial institutions (“FFIs”) that the FATCA FFI Registration system has been updated to include the ability for FFIs to renew their agreement with the IRS.

FFIs that are required to renew their FFI Agreements should resubmit their registration applications by 31 July 2017, in order to be treated as having the FFI Agreements in effect as of 1 January 2017.

In addition, FIs around the world have been receiving messages from the IRS FATCA Registration System reminding them to update their agreements, if required. To make this process simpler, a “Renew FFI Agreement” now appears on the account home page after logging in.

For more information regarding which FFI’s are required to register, please see Table 17 on page 85 in Publication 5118.

IRS releases revised FATCA Online Registration User Guide

In June 2017, the U.S. Internal Revenue Service (“IRS”) released a revised Publication 5118 Foreign Account Tax Compliance Act Online Registration User Guide. Under the “What’s New” section, the IRS has provided the following information:

  • The FATCA Online Registration System now allows FIs to renew their foreign financial institution (FFI) agreement with the IRS. Certain financial institutions (FIs) must complete the renewal by July 31, 2017. All registered entities should use the system to determine whether they need to renew their agreement. (Table 17: Self Determination for Renewal of FFI Agreement can assist FIs with their determination.)
  • The FATCA Online Registration System adds account home page information regarding Renewal of FFI Agreement information including updates to account information such as the renewal due date and submitted date.
  • The IRS has discontinued the limited status for new or renewing FI applicants. Existing branches will no longer be marked as being in limited status.
  • Additional updates include:
    • A warning banner added to the login steps.
    • The number of attempts allowed to login to the registration system is reduced from five to three attempts.

Success factors in post-merger integration

Entering foreign markets and reaching new customers, realising cost savings or extending product portfolio: The rationale for mergers and acquisitions vary from deal to deal. In some cases, deal makers are able to reach their expected synergies quickly. Other mergers and acquisitions will not add the value the deal makers were hoping for. What are the main reasons why some deals are sustainably successful while others fail to meet expectations?

That was the question we wanted to answer with our recently published analysis “Success factors in post-merger integration (PMI). “  The study concludes that successful deal makers excel in four areas of the PMI process:

– achieving synergies,
– completing the integration within an ambitious timeframe,
– successfully managing culture and change, and
– implementing strong project governance.

Synergies are key

Synergies are a key to success and a necessary precondition to creating value with a merger or acquisition. Successful deal makers tend to integrate deeper than less successful acquirers. Businesses that are successful at integrating usually integrate not only support functions, but also core functions such as research and development.

Balance between speed and quality

Successful deal makers complete most of the integration within one year after closing. Businesses managing a speedy integration will benefit from the positive effects of a merger much sooner, enabling them to quickly return to daily business. The challenge lies with finding the optimum balance between the speed and quality of the integration. Too speedy an integration is risky: businesses may take uninformed decisions and overlook important aspects.

Actively managing culture and change

Establishing culture and change management during the integration process is one the most important success factors. Our survey indicates that companies that put culture and change management at the heart of their integration process perform considerably better. For the deal to be sustainably successful, businesses should focus on keeping key talents in the firm and engaging employees.

Strong project governance will pay off

The fourth success factor in post-merger integration is organizational: Businesses that implement strong project governance are usually more successful at integrating. Characteristics of a robust project governance include pragmatic guidelines for decision-making and on how to assign the right resources to the right activities at the right times. Strong project governance will speed up the integration process, offer support during cultural clashes as well as in managing other risks that can put integration success in danger.

The four dimensions are strongly interlinked

Our analysis shows that the four main success factors are strongly interlinked: Companies who perform well in one dimension also tend to excel in the other three. Businesses who take the four success factors identified in our research into account throughout the integration process have good chances to reach their expected goals – no matter whether these are  to conquer new customer segments, to build expertise, or to cut costs.

Download full report

Contact

Dr. Claude Fuhrer
Partner and M&A
Integration Leader PwC Switzerland
+41 79 312 80 82
claude.fuhrer@ch.pwc.com

Dr. Rosi Liem
Director and M&A
Integration Leader PwC Germany
+49 160 9953 24 02
rosi.liem@pwc.com 

Latest Level 3 ESMA Q & As related to MiFID II/MiFIR

ESMA published and updated in the last couple of days additional Level 3 Q&A papers. Due to the specification and clarification purposes of the Level 3 papers, this should help you during the implementation phase and could clarify open questions. Please find the relevant June and May 2017 Q&As below.

PwC provides you with this Newsletter an overview of the latest questions related to the following topics:

  1. Investor Protection
  • Information on costs and charges
  • Post-sale reporting
  • Appropriateness / complex financial instruments
  1. Transparency
  • None-Equity transparency
  • Pre-trade transparency waivers
  • The systematic internaliser regime
  • Data reporting services providers
  • Third country issues
  1. Market Structure
  • Direct Electronic Access (DEA) and algorithmic trading
  1. Commodity Derivatives
  • Position Limits
  • Ancillary Activity
  • Third country issues

Read the whole article.

We are happy to discuss with you any thoughts and issues or are happy to review your solutions with regard to MiFID II and MiFIR. Please do not hesitate to contact us.

Günther Dobrauz
Partner
Leader Legal FS Regulatory &
Compliance Services
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager
PwC Legal FS Regulatory and
Compliance Services
+41 58 792 23 25
michael.taschner@ch.pwc.com

Orkan Sahin
Senior
PwC Legal FS Regulatory and Compliance Services
+41 58 792 1994
orkan.sahin@ch.pwc.com

Swiss pension outcomes are falling – could “matching” be part of the answer?

Low, even negative, interest rates and uncertain growth prospects is becoming a “new normal” in Switzerland. The impact on pension fund finances is well documented – pressure on funding levels, tough to find the right investment opportunities and focus on cost transparency. This environment also poses challenges for insured members, and as a result their employers. Expected retirement outcomes have fallen. What does this mean for employees and employers? 

10 years ago an insured person would expect higher returns on any money they invest for retirement than they would today. The mandatory interest credit for Swiss pension plans according to BVG/LPP was 2.50% in 2007 compared to 1.00% today.  Ten-year Swiss government bonds yields have fallen from 2.6% to -0.1% in the same period. This not only affects expected returns on the assets set aside but also the cost of providing an income for life after retirement. Life expectancies for retiring pensioners have increased by about 1 year for females and 2 years for males in that time which also needs to be funded.

All of these factors have had a major impact on retirement outcomes. Based on our calculations, in 2007 a 40 year-old could invest CHF 7’100 and expect a pension of a CHF 1’000 a year for that investment. Today a 40 year-old would expect to have to invest CHF 14’700 – more than doubling of the cost of retirement over 10 years. In that time, inflation expectations have also fallen, but overall the cost of retirement has increased.

What can pension funds do?

Pension funds aim according to our experience to maintain the level of retirement benefits they provide while financing the promises already made. But pension funds are in a “zero-sum” game – without extra funding, members will ultimately receive lower benefits on average when results are not what was expected. Robust analysis and forecasting of what employees can expect to receive, combined with clear communication may be the best what they can do. Other measures are down to employees and employers as recipients and sponsors of retirement benefits.

What does this mean for individuals and employers?

Find higher returns? In conventional collective Swiss plans, employees share in the overall returns of the fund as they are credited to them. This limits opportunities to take more risks, with an expectation of higher returns. For higher earnings, it is possible to have individual strategies through a “1e” pension plan. These plans can be used to seek higher returns, but this may not be suitable for all.

Later retirements? Without saving more, employees have to retire later for the same outcome.  In some ways this is only reasonable: If life expectancies increase without changing retirement ages, the proportion of life we spend in retirement rises. Employers may have to prepare for the ageing effect on their business – not only their workforce recruitment and retention, but possibly their business strategy and target markets.

Employers pay more? One answer may be employers paying more. But employers face economic challenges themselves, with increasing competition and pressure for results. For most companies, raising costs or investing cash may not be palatable.

Employees pay more? Creating more awareness of the individual options available for the employees is one option. Additional voluntary employee contributions are typically deductible for tax purposes. Some employees don’t have confidence in their pension plan and are not keen to lock away money until retirement.

How can companies create further incentives for employees to pay more? A look abroad could help.

Could “matching” be part of the solution?

In the US as well as the UK, contribution “matching” is widely used in pension plan design. Employer contributions are adjusted to “match” those of employees. When an employee contributes a percentage of their salary into the plan, the employer contributes an amount directly linked to what the employee pays. This could be 1:1 – i.e. if the employee pays 2% of pay, employer pays the same. Or some ratio like 2:1 or 1:2.

The big advantages of matching are two-fold: it encourages employees to pay more; and it focuses employer spending where it is most valued by its employees. One of our clients challenged the common Swiss plan option of employers paying the same for all employees, whereas employees can choose their level: “Why can employees choose to pay less, but I cannot follow when they do?” A reasonable question that matching helps to address.

The challenge is that legislation in Switzerland currently restricts the ability to apply matching within the regular plan. The law requires the employer contribution rate to a pension plan to be the same for all employees in the same situation (e.g. age, grade etc). “Matching” can be done through the buy-in system. So with the right plan design, matching can be incorporated within the Swiss plan.

This won’t for every situation as the use of buy-ins is subject to certain caps and restrictions which may become a barrier. Plan administration may be more complex. But in challenging times for pension outcomes, new solutions may be needed.

Contact

Richard Köppel
Pensionskassen-Experte SKPE, Poeple and Organisation
Tel. +41 58 792 11 72
richard.koeppel@ch.pwc.com
Adrian Jones
Director, People and Organisation
Tel. +41 58 792 40 13
adrian.jones@ch.pwc.com

OECD BEPS: Multilateral Instrument signed by Switzerland and 67 other countries

On 7 June 2017, officials from more than 70 countries participated in the signing of the multilateral instrument (“MLI”), which is a result of negotiations of more than 100 jurisdictions. The Organization for Economic Cooperation and Development (“OECD”) aims for a swift implementation of a series of tax treaty measures to update international tax rules and reduce the opportunity for tax avoidance. Impacts for Swiss companies are mainly expected in the field of dispute resolutions.

The MLI is one of the outcomes of the OECD/G20 Project to tackle Base Erosion and Profit Shifting (“BEPS”) and has the goal to enable countries to swiftly modify bilateral tax treaties (more than 3’000 worldwide) to include the measures developed in the course of the BEPS work. In this respect, an ad hoc group, consisting of 99 countries, four non-state jurisdictions and seven international or regional organizations participating as observers, developed the MLI. In their negotiations, the ad hoc group focused on the following BEPS measures and how the MLI would need to modify the provisions of bilateral or regional tax agreements. Aiming to swiftly implement those measures, some of which are minimum standards and others representing best practice recommendations only:

  • Hybrid mismatch arrangements in accordance with BEPS Action 2 (best practice recommendation);
  • Granting of treaty benefits in inappropriate circumstances under BEPS Action 6 (minimum standard);
  • Amendments to the definition of “permanent establishment” as recommended under BEPS Action 7 (best practice recommendation);
  • Facilitating of access to and resolution of mutual agreement procedures consistent with BEPS Action 14 (minimum standard).

Continue to read in detail in our current newsletter.

If you have questions, please contact your usual PwC contact person or one of PwC Switzerland´s experts named below.

Contacts

Andreas Staubli
Partner
Leader TLS Schweiz
Tel. +41 58 792 44 72
Send E-mail
Armin Marti
Partner
Leader CT Schweiz
Tel. +41 58 792 43 43
Send E-mail
Stefan Schmid
Partner
Tax & Legal
+41 58 792 44 82
Send E-mail
Fabio Dell’Anna
Partner
Tax & Legal
+41 58 792 97 17
Send E-mail
Claude-Alain Barke
Partner
Tax & Legal
+41 58 792 83 17
Send E-mail
Michael Ruckstuhl
Senior Manager
Tax & Legal
+41 58 792 14 94
Send E-mail

PwC’s Corporate Finance Team Advises Electrosuisse on Successful Transaction

07/06/2017

PwC Corporate Finance advises Electrosuisse on the sale of its testing and certification business activities to Eurofins

Zurich | A team of PwC Switzerland led by Sascha Beer, Partner Corporate Finance / M&A, acted as lead advisor to Electrosuisse, the official specialist organization in the field of electrical engineering, power generation and information technology with c. 6’900 members in Switzerland, on the sale of its testing and certification business activities to Eurofins.

With more than EUR 2.5 billion in annual revenues and over 28,000 employees in 2016, Eurofins is a leading international group of laboratories providing a range of analytical testing services.

The sale to the international Eurofins Group reflects Electrosuisse’s response to the changing economic and political conditions as well as the increasing complexity and globalization in the testing and certification market and ensures that Swiss equipment manufactures will continue to gain access to international markets in the future.

The team 

Sascha Beer
Partner, Corporate Finance / M&A

Marc Buser
Senior Manager, Corporate Finance / M&A

Lasse Stünitz
Senior Consultant, Corporate Finance / M&A

Switzerland publishes recommendations for new corporate tax proposal 17

After rejection by popular vote of the Swiss corporate tax reform III (CTR III) package in February 2017, a Swiss governmental working group comprised of federal and cantonal members (the steering body) has been working on a revised package (tax proposal 17).

The steering body on June 1, 2017, published its recommended contents for tax proposal 17. The Federal Council now will consider the draft proposal and is expected to publish a final proposal for consultation by end of June 2017. Thereafter, parlamentary discussions are expected to start in spring 2018 and entry into force is expected to take effect January 1, 2020.

Continue to read in detail in our current newsletter.

If you have questions, please contact your usual PwC contact person or one of PwC Switzerland´s experts named below.

Contacts

Andreas Staubli
Partner
Leader TLS Schweiz
Tel. +41 58 792 44 72
Send E-mail
Armin Marti
Partner
Leader CT Schweiz
Tel. +41 58 792 43 43
Send E-mail
Benjamin Koch
Partner
Leader TP and VCT
+41 58 792 43 34
Send E-mail
Daniel Gremaud
Partner
Tax & Legal
+41 58 792 81 23
Send E-mail
Claude-Alain Barke
Partner
Tax & Legal
+41 58 792 83 17
Send E-mail
Remo Küttel
Partner
Tax & Legal
+41 58 792 68 69
Send E-mail
Laurenz Schneider
Director
Tax & Legal
+41 58 792 59 38
Send E-mail

EMEA ITS Permanent Establishment Webcast Series, Episode One

The Changing PE Threshold

Thursday, 8 June 2017, 3.00 – 3.45 pm CET

Preventing the artificial avoidance of Permanent Establishment (“PE”) status is one of the key topics addressed by the OECD’s Base Erosion and Profit Shifting (“BEPS”) package.

In this webcast series PwC specialists will address the practical implications that a reduction in the PE threshold will have for multinational corporations and will provide an insight, through examples, on the challenges and practical actions that can be taken to manage PE in the post-BEPS world.

The webcast series will provide a mix of technical updates and analysis, practical experience and local country expertise around topics such as profit attribution to a PE, direct tax consequences of a PE and the broader impact that the new rules will have on an increasingly global and mobile workforce. Critically, it will give you the chance to raise questions directly to our PE specialists.

The webcast series will start by setting the scene for the current PE landscape by considering the practical changes that have taken place to the PE threshold and the subsequently looking at the practical challenges associated with attributing profit to PE’s. The later sessions will focus on the practical implications of
these changes, providing guidance and experience of the challenges and risks that may be created.

  • Session 1 –The Changing PE Threshold – 8 June 2017
  • Session 2 –Profit Attribution to PE’s – 6 July 2017

After the summer break we will return recharged with further sessions covering topics such as

  • Broader implications of a PE beyond corporate tax
  • VAT and PE
  • Employee mobility and PE consequences

Episode 1, The Changing PE Threshold – 8 June 2017

This introductory episode will set the stage for our ongoing discussion of PE in the new tax environment and will work through practical examples being faced by multinational corporations, addressing questions such as:

  • What are the main developments in the definition of PE in the international environment?
  • Walk though practical examples to demonstrate how the changes related to: (1) fixed place of business, (2) auxiliary and preparatory exceptions, (3) independent and dependent agent, (4) antifragmentation and contract splitting are likely to work in practice and potential risk areas.
  • Assess how PE definition and interpretation may vary by local jurisdiction, taking Poland and Spain as examples to identify the impact this will have on a multinational’s approach to international business.
  • Provide an update on the multilateral instrument as it relates to PE.

Speakers for episode 1 are:

Monica Cohen-Dumani – EMEA ITS Leader
Guillaume Glon – PwC France
Mike Cooper – PwC UK
Agata Oktawiec – PwC Poland
Carlos Concha Carballido – PwC Spain
Please click on the below link to register for the WebEx session.

Registration Link

Complete the required registration fields and select “Submit”.
Once you have registered, you will receive the WebEx access details. The WebEx will be recorded and you will receive a link to the recording via e-mail after the event using the same details. There will be time for questions and answers with your speakers during the WebEx. Questions can also be sent in advance of the
WebEx session to the following email address: grasiele.neves@ch.pwc.com

We do hope that you will join us online!

Best regards
Monica Cohen-Dumani

PwC | Partner, International tax services, EMEA ITS Leader
Office: +41 58 792 9718 | Mobile: +41 79 652 14 77
Email: monica.cohen.dumani@ch.pwc.com
PricewaterhouseCoopers SA
Avenue Giuseppe-Motta 50 | Case postale | CH-1211 Genève 2, Switzerland
http://www.pwc.ch

Swiss Withholding Tax Refund on Equity Finance Transactions: New Decision of the Federal Supreme Court

On 5 April 2017, the Swiss Federal Supreme Court issued a new decision concerning the Swiss withholding tax refund right of an Italian bank that was engaged in a combination of buy-sell and derivatives transactions with shares of Swiss issuers around dividend payment dates. To a large extent, the decision of the Court concentrated on the evaluation of taxpayers’ compliance with the concept of beneficial ownership requirements aimed at assessing whether relevant transactions entered into by the taxpayer constituted the mere setup of a dividend stripping. Subsequently, the Court denied Swiss withholding tax refund claims due to the failure of the taxpayer to provide the Federal Tax Authorities (“FTA”) with the required information for the identification of the counterparties to the relevant trades, considering this a failure of the taxpayer to cooperate since such information is, in the view of the Court (and of the FTA), an essential element of proof within beneficial ownership testing.

Previous jurisprudence

The judgment represents the further evolution of previous cases delivered by the Federal Supreme Court in similar situations, and in particular, with regard to two Swiss withholding tax refund lead cases dealing with Danish Banks (for further details, please see the following blog posts).

Decision of the Federal Supreme Court of 5 April 2017

Relevant facts:

A bank incorporated in Italy entered into a number of buy/sell and derivatives transactions (futures) with Swiss shares. The bank acquired these securities shortly before the dividend payment date and sold them shortly after the dividend receipt. Further to the dividend payments, the Italian bank filed several withholding tax refund requests with the FTA regarding dividends distributions arising from securities held on ex-dividend dates. While the claims were under consideration, the FTA requested the bank provide additional information regarding the transactions, and in particular, to disclose information enabling the identification of the counterparties to the transactions with underlying securities prior and post the dividend payment event.

Because the Italian bank was unable to provide this information, the FTA and the Federal Administrative Court rejected its Swiss withholding tax refund claims.

Federal Supreme Court decision highlights:

In its decision, the Swiss Federal Supreme Court reiterated its jurisprudence regarding the concept of beneficial ownership, and provided the following arguments:

  • The Federal Supreme Court re-established that Swiss withholding tax refund claim eligibility in the context of the application of a double taxation treaty requires that the claimant be the beneficial owner of the underlying income.
  • To qualify as a beneficial owner of income (a dividend in the case in question), the recipient should be free in determining further faith of income received (this means that the taxpayer should not have any contractual or legal obligation to pass on such income to third parties). The notion of beneficial ownership should be considered while taking into account economic circumstances and not just pure tax reasons (such as the attempt of the recipient of the dividend to benefit from a double tax treaty withholding tax reduction). Consequently, the Court mentioned that although the tax savings is effectively not present, this is not relevant for the double tax treaty eligibility analysis, which precluded the line of reasoning that all counterparties involved in the transaction were residing in treaty countries with the same residual Swiss withholding tax rate under the relevant treaty with Switzerland.
  • Moreover, the Federal Supreme Court recalled that Swiss Tax Law imposes information-sharing and cooperation duty on taxpayers. This duty should apply both to resident and non-resident taxpayers, even if the double tax treaty does not have a specific provision in this respect. The Court stated that during the procedure, the FTA may request information and documentation enabling it to appropriately review and assess a Swiss WHT refund claim. The rules are that the requested evidence must not be obviously inappropriate to make the required assessment (i.e., it must be reasonable and offer suitable proof) and should not result in disproportionate costs for the claimant. The absence of cooperation cannot create a comparative benefit for the taxpayer, and will have negative consequences if the case cannot be properly reviewed and assessed by the authorities.
  • The Federal Supreme Court also stated that brokers used in equity finance transactions will not be recognized as counterparties but only as intermediaries, and that it is the claimant’s duty to provide proof of the effective counterparty behind the broker.

After analysing the facts of the case, the Court found that:

  • The taxpayer could not establish its compliance with Swiss beneficial ownership requirements for double tax treaty benefits application purposes just by providing the names of the counterparties effectively involved in the transactions.
  • The FTA may request information and documentation to make a proper assessment of the facts and circumstances of the transaction which resulted in a Swiss WHT claim. The claimant must provide reasonable documentation as part of his information and cooperation duties. These duties are limited by the principle of proportionality, which means that the requested information should neither be obviously inappropriate to make the required assessment nor result in disproportionate costs for the claimant. Of course, these principles are open for legal interpretation and subject to scrutiny.
  • Moreover, the Court ruled that, by not providing the requested information, the Italian bank deliberately hid essential elements of the facts required for the analysis of its transactions by the authorities, meaning non-cooperation was in fact established. Without the documentation by the claimant, the FTA was put in a position where it was impossible to understand the effective flows and structure, or to analyse the claim against the practice established by the Court. Hence, the claimant was forced to face the consequences of the missing proof of its tax mitigating elements.

Further to the above, the Federal Supreme Court concluded that the withholding tax refund should be denied to the Italian bank (only a non-material claim was sent back to the tax authorities for reassessment due to violation of the formal requirements of the procedure).

What does it mean for you?

The new Court decision clearly shows, in line with previous jurisprudence, an overall trend for assessing compliance with beneficial ownership requirements, and for the detailed review of relevant documentation when withholding tax refund claims are filed within the scope of financial services industry transactions. Market participants using brokers in similar transactions will be required to disclose the effective parties behind the broker, which will in practice make it difficult to establish proof.

The recent jurisprudence makes it clear that all cases should be analysed on the basis of individual facts and circumstances, and that outcomes may vary depending on the analysis of transactions.

We encourage you to review present and previous withholding tax claims filed for similar transactions to determine whether any risks are present, and to develop and implement risk mitigating strategies for the future.

Martin Büeler
Partner, Tax & Legal
martin.bueeler@ch.pwc.com
+41 58 792 43 92
Luca Poggioli
Director, Corporate Tax
luca.poggioli@ch.pwc.com
+41 58 792 44 51
Victor Meyer
Partner, Tax & Legal
victor.meyer@ch.pwc.com
+41 58 792 43 40
Dieter Wirth
Partner, Tax & Legal
dieter.wirth@ch.pwc.com
+41 58 792 44 88
Dmitri Deniskin
Director, Tax & Legal
dmitry.deniskin@ch.pwc.com
+41 58 792 8258