Enhanced auditor’s report: towards trust and transparency

The new auditor’s report required by Swiss legislation is designed to be more informative and insightful, and give the stakeholders of reporting entities greater assurance. We at PwC welcome the new reporting requirements as an opportunity to unlock the ‘black box ’of what we actually do as auditors and increase trust in our role.

We also realise, though, that the new reports and their potential impact on governance have to be discussed and understood – not only by the auditors who produce them, but by reporting entities and their stakeholders, from shareholders to regulators. For this reason we’ve produced a short flyer explaining the major changes and their implications, including a commented overview of the structure of the new report.

You can read the flyer via the link below. Feel free to contact us if you’d like to discuss the new auditor’s report and its implications in more detail.

Download flyer

 

GDPR essentials and how PwC can help

Stricter EU data protection rules adopted

The General Data Protection Regulation (GDPR) entered into force on 24 May 2016. This creates a new regulatory framework unifying data protection laws across the 28 European Union (EU) member states and replaces the prior EU Data Protection Directive. The GDPR imposes a radical data protection and privacy regulatory framework on Europe and the wider world for the processing of personal data of EU citizens. Although there is a transposition period of 2 years for countries and companies to get ready, there are many new and significantly enhanced requirements that organisations should take action on before the May 2018 deadline.

Are Swiss companies impacted?

Any organisations that are active in Europe will need to comply with the GDPR. For example, a Swiss retailer that has no business facilities in the EU but directs the markets products to customers based in the EU will need to comply with the GDPR.

 A compliance journey

The GDPR contains a series of new rules that require entities to revisit and refresh their systems and operations for data protection. Collectively, these new rules lay down a new “compliance journey” that entities will have to follow to keep on the right side of the law.

Why CISOs should feel concerned

The adoption of the GDPR presents CISOs from many organisations across the globe with numerous new challenges. Key issues to be aware of include the expansion of the definition of “personal data”, the establishment of data protection standards, new data breach notification requirements and the high cost of security failures.

How PwC can help

As a multi-disciplinary practice, we are uniquely placed to help our clients adjust to the new environment. Our data protection team includes lawyers, consultants, cybersecurity specialists, auditors, risk specialists, forensics experts and strategists. Our team is truly global, proposing innovative solutions with on the ground expertise in all the major EU economies. Our range of services includes the following: a readiness assessment, a personal data inventory, a comprehensive gap analysis, an action plan development, and assistance in the implementation of compliance actions.

For more information concerning the GDPR and how we at PwC can help, please refer to our flyer.

The electronic VAT return is here!

PwC_Swiz_Zurich_C_MB_62 resized

As of September 8, 2015, the management of the VAT compliance tasks for taxpayers in Switzerland has taken a broad step ahead. The Swiss Federal Tax Administration (FTA) has introduced “AFC SuisseTax”, a secure portal allowing to simplify the VAT reporting process, as henceforth all Swiss VAT declarations can be submitted electronically to the FTA.

The new platform was first launched and tested in four Swiss Cantons and given the successful results, it has now been released on a Swiss-wide level.

Through AFC SuisseTax, businesses registered for VAT in Switzerland can:

  1. Submit their VAT returns and corrective VAT returns electronically
  2. Submit the annual VAT reconciliation (so-called 5th VAT return) electronically
  3. Request an extension, if necessary, of the filing deadlines
  4. Monitor on a regular basis the submission of VAT returns, as well as, of all operations performed via the portal (operations executed / on hold)

The transition from paper to electronic form can increase efficiency and facilitate the fulfilment of VAT reporting tasks. It should be noted that the e-filing option is available for all Swiss VAT registered businesses (taxable persons established in Switzerland and abroad). However, if your business is not established in Switzerland, the authorization process should be carried out through the fiscal representative.

A brief presentation of the new portal can be found on the following interesting video prepared by the FTA:
link to video

As a next step, businesses registered for VAT in Switzerland should consider the implementation of the e-filing option offered by the FTA and adapt their internal processes accordingly. Your PwC Indirect Tax team is ready to answer your questions and guide you through the implementation and use of the new system.

Your needs:

  • “How to”: Review the system requirements, assist you with the request of the e-filing and the authorization process;
  • Assess the correctness and quality of the data transmitted electronically through the portal;
  • Adapt your internal compliance processes for preparing and reviewing VAT returns;
  • Ensure the safety of your data, as FTA declines all responsibility for damages that may result from the use of the platform;
  • Manage efficiently the user account(s) granted to your business by the FTA, determining the authorizations required for the use and the transmission of statements.

Last but not least, even though the e-filing option launched by the FTA facilitates the reporting process, the new process will also help the FTA to perform consistency checks regarding the data transmitted. Swiss taxpayers should keep this in mind, anticipate the review of the VAT data transmitted electronically and ensure the proper implementation of e-filing process as well as of the appropriate internal controls.

Your contacts

Patricia More
Partner
PwC Switzerland
Tel. +41 58 792 95 07
Email: patricia.more@ch.pwc.com

Olivier Comment
Senior Manager
PwC Switzerland
Tel. +41 58 792 81 74
Email:olivier.comment@ch.pwc.com

Gergana Chalakova
Assistant Manager
PwC Switzerland
Tel. +41 58 792 92 02
Email: gergana.chalakova@ch.pwc.com

Larentia + Minerva: CJEU issues its decision on the VAT deduction right of active holding companies & VAT grouping rules

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Larentia + Minerva: CJEU issues its decision on the VAT deduction right of active holding companies & VAT grouping rules

July 16, 2015

The Court of Justice of the European Union (CJEU) released yesterday its decision on the joint cases, Beteiligungsgesellschaft Larentia+Minerva GmbH & Co. KG (C-108/14) (Larentia+Minerva) and Marenave Schiffahrts AG (C-109/14) (Marenave).

The questions referred to the CJEU concern two significant issues:

  • The input VAT recovery of holding companies involved in the management of their subsidiaries.
  • The VAT grouping rules and the restrictions imposed by national law.

We recall that the Swiss VAT legislation considers the acquisition, holding and disposal of shares an economic activity and admits the VAT deduction right of holding companies irrespective of their involvement (passive or active) in the management of their subsidiaries.

On the contrary, based on the EU VAT principles, passive holding companies limiting their activities to the acquisition, holding and disposal of shares neither have the status of a taxable person nor the right to deduct any input VAT. A holding company can qualify as a taxable person only if it is involved in the management of its subsidiaries by providing taxable services to the latter (active holding company). In this case, the VAT deduction right may be admitted, however, is under scrutiny in many EU Member States.

Background
Larentia+Minerva was the owner of 98% of the shares in two limited partnerships each one operating a vessel. Acting as a “management” holding company, Larentia+Minerva provided taxable supplies (i.e. administrative and consultancy services) for consideration to these subsidiaries. The holding company sought to recover the input VAT incurred in the frame of raising capital from a third party to fund the acquisition of the shares in its subsidiaries and the services provided to the latter.

Following a similar factual pattern, Marenave incurred input VAT on costs relating to raising capital through the issue of new shares. The capital raised was used to fund the acquisition of shares in four limited shipping partnerships to which Marenave provided management services for remuneration.

In the case of Larentia+Minerva, the German tax authorities only permitted the partial deduction of the input VAT considering that the majority of the costs connected with the acquisition of shares in the subsidiaries should be attributed to a non-economic activity, namely the holding of shares in subsidiaries for which the input VAT deduction is not allowed. In respect of Marenave, the German tax authorities denied the right to deduct the input VAT incurred for the issue of shares on grounds of lack of involvement of the holding company in the management of its subsidiaries.

Questions referred to the CJEU

  1. In its first question, the referring court asked which calculation method is to be used to calculate a holding company’s (pro rata) input VAT deduction in respect of costs related to the procurement of capital for the acquisition of shares in subsidiaries, considering that this holding company provides taxable supplies to those subsidiaries.
  2. By its second question, the referring court asked whether the restriction of VAT grouping to corporate entities and the condition of a relationship of control and subordination between the members of the group imposed by German law are compatible with the concept of VAT grouping developed by the EU VAT Directive.
  3. Finally, the referring court asked whether the VAT grouping provision in the EU VAT Directive can have direct effect for taxable persons.

Decision of the CJEU
In respect of the first question on the VAT deduction right of holding companies, the CJEU drew a distinction based on whether the holding is involved in the management of all (active holding) or only some (mixed holding) of its subsidiaries through the provision of taxable services to them:

  • In the first case, the CJEU has ruled that the input VAT costs incurred by a holding company in connection with acquisition of shares in subsidiaries form part of the general costs and are fully deductible. In this regard, the input VAT should not be apportioned between the economic and non-economic activities of the holding company.
  • By contrast, the CJEU concluded that if the holding company incurs costs in relation to the acquisition of shares in subsidiaries but has involved itself in the management of only some of those subsidiaries can only partially deduct the input VAT actually to be attributed to its economic activity. The EU Member States must provide for a method of apportionment to calculate the part of input VAT actually to be attributed to the economic and to non-economic activity of the holding company.

In addition, the CJEU found that the VAT grouping conditions implemented in Germany limiting the participation to a VAT group to corporate entities and requiring a relationship of control and subordination between the members of the group are too restrictive and go beyond the requirements set by the EU VAT directive. However, answering the third question, the CJEU pointed out that the provision of the EU VAT Directive on VAT grouping cannot have direct effect allowing taxable persons to claim a benefit thereof.

What does this mean for you?
With this judgment CJEU has shed new light on the VAT deduction right of holding companies, since:

  • The CJEU confirmed that active holding companies should have the right to fully reclaim the input costs incurred in relation to the acquisition of shares in those subsidiaries. An apportionment of the input VAT is only required if the holding company renders VAT exempt supplies to its subsidiaries.
  • On the other hand, mixed holding companies may now face important risks regarding the determination of the calculation method for the deduction of their input VAT costs as the apportionment between economic and non-economic activities will be required. In addition, it cannot be excluded that tax authorities may consider re-assessing the input VAT previously deducted by these entities (up to the time limits applicable).

In light of this decision, various EU Member States are likely to revise their current practice on the VAT recovery of holding companies and the VAT grouping requirements imposed in their national legislation.

Recommendations

  • Businesses with holding companies based in the EU should carefully review their corporate organization and monitor closely the changes that may be adopted in the various EU Member States.
  • Active holding companies having been prevented by tax authorities in the EU to deduct in full their input VAT costs in the past should assess the possibility of launching proceedings to reclaim this input VAT in accordance with the conditions for such proceeding imposed by national law.
  • Mixed holding companies should carefully analyze the impact of this decision, especially in respect of their past entitlement to deduct input VAT. In this case, it is crucial to evaluate the possible solutions to mitigate any risks especially for the past and to determine the method for the apportionment of the input VAT deduction of the holding company for the future.

For more information about the specific consequences for your situation, please contact with your PwC ITX advisor.


Join our live webinar to find out more

How may the CJEU’s judgment impact your business? Will you be in a position to benefit and need to protect your position on time limits? How might your tax authority respond to the decision?

Please join us on our live webinar when a panel of indirect tax experts will provide their insights into the judgement and you will have the opportunity to ask the panel questions during the live webinar. A more detailed analysis with our comments and recommended actions will follow after the webcast session.

Date: 20 July 2015
Time:15:00 BST, 10:00 Eastern (New York)

To Access the Webcast:
Click on the following link to open the webcast registration page:
https://event.webcasts.com/starthere.jsp?ei=1069405

You may log in starting 15 minutes before the webcast begins, but it will be also recorded for later viewing. Recording can be accessed under the same link or you can find it on pwc.com.

After filling out the registration page, the webcast will open in Internet Explorer to enable you to view the presentation on your desktop and hear audio through your PC speakers. If you are watching the webcast in a group setting, please note that you will need to connect external speakers to the PC that is projecting the webcast to the group. You should *not* view the webcast via computer AND then listen via phone as there will be a delay in the sound.

We look forward to exchanging with you.

Kind regards,

The Federal Court rules against the FTA’s 25/75% practice

PwC_PC_France_Paris_MB_081Impact on non-profit organisations

In an explicit manner, the Swiss Federal Court has ruled against the Federal Tax Administration’s (FTA) so-called 25/75% practice regarding VAT liability and the right to register for VAT purposes in Switzerland.

The case related to a foundation operating a museum which covered less than 25% of its costs by revenues generated from supplies of goods and services, respectively more than 75% of its costs were financed by non-considerations, such as donations, subsidies, capital contributions, etc. In accordance with the 25/75% practice, the FTA claimed that the foundation cannot be considered taxable person and cancelled the VAT registration of the foundation retroactively from 1 January 2010.

In its judgement 2C_781/2014, dated 19 April 2015, the Swiss Federal Court has decided that this practice is inconsistent with the VAT Law. Even if, as in the case at hand, the foundation’s costs are covered far below 25% by considerations for supplies of goods or services, the VAT registration cannot be denied.

The Federal Court dismissed the argument of the FTA in relation to the 25% threshold stating in its judgement that: “within a business activity there cannot be a non-business area. A nonbusiness activity, which is not entitled to input VAT deduction, cannot be simply presumed, but must be clearly and unequivocally independent to the business activity”. As a result, the foundation will be reinstated in the VAT Register with retroactive effect as of 1 January 2010 and will likely be reimbursed a significant (six figure) VAT amount from the FTA.

For non-profit organisations this judgement has significant consequences:

  1.  If a non-profit organisation performs business activities, it is liable for the VAT and must register, when its turnover from such business activities exceeds the threshold of CHF 150,000 (for cultural, sport or other organizations pursuing goals in the public interest) or CHF 100,000 (for organisations not falling under the previous category). In case the organisation’s turnover is below the threshold, the possibility for opting for voluntary VAT registration should be investigated.
  2. Where the organisation does not perform non-business activities which are clearly and unequivocally independent from its business activities, it should be entitled to full input VAT deduction, unless the organisation carries out supplies of goods and services exempt from tax without credit or receives subsidies.
  3. If an organisation has been de-registered for VAT purposes due to the discussed practice of the FTA as of 1 January 2010, it is worth analysing the possibility of the organisation to claim retroactive VAT registration and the related input tax.
  4. If the organisation has, besides its business activity, a clearly independent non-business area of activity, the allocation and therefore the input VAT deduction right should be examined.

In any event the FTA will have to revise its current practice and take a decision which is already overdue. Taking into account the Swiss Federal Court’s clear judgement it is worthwhile to act proactively and take the opportunity to analyse the VAT position of your organisation and submit your proposed solution to the FTA.

Download this document

Contacts:

Olivier Comment

Gergana Chalakova

Senior Manager
PwC Switzerland
Tel. +41 58 792 81 74
Email:olivier.comment@ch.pwc.com
Assistant Manager
PwC Switzerland
Tel. +41 58 792 92 02
Email:gergana.chalakova@ch.pwc.com

New European Union Implementing Regulation for company vehicles registered in Switzerland

Do you provide company vehicles for the use of your crossborder employees? These new rules could affect you!

New regulation for company vehicules

The entry into force of the new European Union Implementing Regulation (EU) 2015/234 as of 1 May 2015 means that company vehicles registered in Switzerland and placed at the disposal of employees resident in the EU will be subject to customs duties if they are used for private purposes.

In cases of non-compliance with European customs regulations, the user, i.e. the employee, becomes liable for the corresponding import duties and taxes as well as any fines for not clearing the vehicle through customs.

Company vehicles registered in Switzerland and used by employees residing in Switzerland are not affected by this change. However, for cross-border commuters, companies have to distinguish between those who use such vehicles purely for professional purposes and those who use them for professional and personal ends.

(i) In the first case, a cross-border commuter using a vehicle only for the journey to and from home to the place of work and to carry out professional activities specified in the employment contract may continue as before under the current rules (temporary admission procedure, which suspends customs duties and import tax). It is essential for companies to amend employment contracts and other internal regulations, where necessary, to reflect the intended use of vehicles. Moreover, a copy of the employment contract should be kept in the vehicle at all times.

(ii) The second case is more challenging because the employers must decide whether to continue to allow personal use of the vehicle.

If the employer were to prohibit the personal use of the vehicle, the employment contract would have to be modified, This has consequences, especially in terms of compensation, social security contributions and the tax regime of both the employee and the company.

If personal use is allowed to continue, the vehicle must be cleared through customs (10% customs duty, 20% non-refundable VAT) and several issues have to be resolved:

  • What is the value of the vehicles to be declared as there is no sale? The customs recommend Argus value but based on the French regulations in force and our experience it could be reduced.
  • What measures can be taken to reduce the customs duties? Is there an alternative to the temporary admission procedure to reduce the customs duties owed?
  • What formalities have to be respected?

Urgent action is needed, therefore, to ensure the use of company vehicles complies with European Union law. Our teams in France and Switzerland are at your disposal to assist you through the steps of the two approaches:

1. Clearing the vehicle through customs with the aim of maintaining stable employment contracts for cross-border commuters

Our teams can support you to:

(i) Minimise the impact of customs clearance of vehicles currently placed at the disposal of employees (clearance for personal use vs. other regime, determining the customs valuation);

(ii) Accelerate customs clearance (i.e. EORI registration, support in instructing customs agents as well as training HR teams to deal with the customs expenses now inherent when providing a company vehicle and with ‘crisis situations’ (e.g. if an employee’s vehicle is confiscated by French customs officers, negotiations over fines levied by customs, etc.).

2. Adapt current practices: prohibiting any purely personal use of the vehicle.

Our Swiss team supports you in making the required changes to employment contracts, internal regulations and other relevant documents while ensuring they comply with the other fiscal and social obligations of the company (the valuation of fringe benefits, social security contributions as well as personal and corporate tax).
Whatever the situation, we study the specific needs of your organisation and help you implement solutions tailored to your company’s fleet management.

Download this document

Fundamental Review of the Trading Book

It is getting serious…

Fundamental changes are coming up for the banking industry. In course of its aim to increase the stability of the financial system, the Basel Committee is going to make substantial changes to the way required capital for market risks is calculated – and after the recently published consultative paper “Fundamental Review of the Trading Book: Open Issues”, it becomes quite clear what form these changes will take.

Not just about the trading book

The Basel Committee aims to specify the boundary between the trading and the banking book more clearly and unambiguously. While still keeping the intention to trade, hedge and profit from short-term price fluctuations as a guiding principle, the Committee gives strict rules and assumptions about which book certain positions must be allocated. In particular, positions which nowadays can safely be held in the banking book might be switched to the trading book in the new setup. Even in cases where no trading book is needed currently, under the new guidelines the need for a trading book might arise.

The new standard approach – taking sensitivities into account

While the Basel Committee originally suggested calculating required capital based on future cash-flows, it now favors a sensitivity-based approach (SBA) due to feasibility concerns from the financial industry. This new approach directly uses risk measures, the sensitivities, to compute the required capital, therefore, the required capital is directly connected to the risk of the portfolio. However, this also poses challenges regarding data availability and quality as all the sensitivities and fundamental information of the instrument for correct bucketing must be available. In particular, missing fundamental data could lead to instruments being mapped to the residual bucket, which would result in a significant increase in the required capital.

Though challenging, the new approach has the potential to increase the stability not only of the financial system but to secure each individual bank. Have a look at the attached flyer to get more detailed information or contact us directly to discuss the upcoming challenges for your business.