Group financing: changes to the withholding tax ordinance designed to facilitate intragroup financing activities out of Switzerland

  1. Current group financing environment in Switzerland

Interest payments on bonds and client credit balances are generally subject to Swiss withholding tax at a rate of 35%. This may have far-reaching consequences on both the external and internal financing of Swiss-based groups and widely impedes both types of financing activity in Switzerland.

  • With respect to external financing, the withholding tax levied on interest payments makes the issuance of bonds in Switzerland rather unattractive. For this reason, groups established in Switzerland often carry out financing activities abroad.
  • With respect to intragroup financing, the crucial point is whether a particular intragroup obligation (note payable) qualifies as a bond/client credit balance or not. Generally, obligations qualify as bonds if they are issued by a Swiss obligor to more than 10 (if the terms are identical) or 20 (if the terms are similar) non-bank creditors and the total credit amount is at least CHF 500,000. Moreover, if a Swiss company has more than 100 non-bank creditors and a loan volume of at least CHF 5 million, such obligations are deemed to be a client credit balance with the corresponding withholding tax consequences for interest payments. These limitations are generally known as the 10/20/100 non-bank lender rules.

The legislator is aware of these disadvantages and introduced an exemption in the withholding tax ordinance in 2010. From that point on, intragroup obligations between fully consolidated group companies have not qualified either as bonds or client credit balances, provided that no Swiss group company guarantees a bond of a foreign group company by way of a downstream guarantee.

As a result of this constraint, the intragroup financing activities of Swiss groups with foreign-issued bonds outstanding and a Swiss downstream guarantee in place need to take account of the 10/20/100 non-bank rules, which substantially hinders the settlement of intragroup financing and treasury activities in Switzerland. If the 10/20/100 non-bank rule is not observed, there is a risk that interest payments to other group companies will be subject to Swiss WHT.

 

  1. Improved group financing opportunities due to changes to the withholding tax ordinance

In order to facilitate group financing in Switzerland, the federal council has decided to amend the Swiss withholding tax ordinance with effect 1 April 2017. Under this amendment, a downstream guarantee issued by a Swiss group company no longer automatically leads to a situation where the above-mentioned exemption for intragroup obligations is not applicable. The amended withholding tax ordinance states that the intercompany exemption introduced in 2010 shall also be applicable for groups with a foreign bond guaranteed through a downstream guarantee of a Swiss guarantor, provided that the funds that are forwarded by the foreign bond issuer to Swiss group companies do not exceed the equity of the foreign bond issuer.

In addition, the current provision under which the exemption is only applicable to fully consolidated group companies is to be extended to include partially consolidated group companies (for example a joint venture in which an interest of least 50% is held).

 

  1. Expected implications in practice

The amendment of the withholding tax ordinance is a step in the right direction, and will facilitate group financing activities in Switzerland. The main benefit of the change in the withholding tax ordinance is the fact that group of companies with bonds issued abroad with a Swiss downstream guarantee can also benefit from the intercompany exemption under the 10/20/100 non-bank rule. The fact that partially consolidated group companies also qualify for the exemption is helpful as well.

However, the general statement that the financing of Swiss entities from a foreign bond issued does not create a harmful flowback, provided that the financing does not exceed the foreign issuer’s equity, will hardly have a lasting positive impact on intragroup financing activities in Switzerland. This is mainly due to the fact that foreign bond issuing entities generally do not require substantial equity, so the permitted flowback to Switzerland will be minimal.

If the legislator is serious about fostering the settlement of intragroup financing activities in Switzerland, additional measures should be taken quickly.

Contacts:

Martin Bueeler
Partner
Tax and Legal Services
+41 58 792 4392
martin.bueeler@ch.pwc.com

Martin Burri
Manager
Tax and Legal Services
+41 58 792 4500
martin.burri@ch.pwc.com

 

Navigating change – the UK tax environment

Banks and their clients have a short time period to react to the significant changes being introduced to the taxation of UK Resident Non-Domiciled (UKRNDs). These changes are being introduced against a sea change in the industry. So what are the key things to be talking about to your clients? How can you adapt to these changes in a commercial and pragmatic way? And what actions should you and your clients be considering – both pre 5 April 2017 and over the longer term?

Watch the recording of our webcast where Alison Hill, Peter Houghton and Lisa Cornwell from PwC UK take a deeper look in to the UK tax environment, allowing you to navigate through the upcoming changes.

Youtube link to the recording

Contacts

Alison Hill,
Director, Private Client Solutions, PwC UK
alison.hill@uk.pwc.com

Lisa Cornwell,
Director, Private Client Solutions, PwC UK
lisa.cornwell@pwc.com

Peter Houghton,
Senior Manager, Private Client Solutions, PwC UK
peter.houghton@uk.pwc.com

Switzerland’s CRYPTO VALLEY ASSOCIATION Founded To Build World’s Leading Blockchain and Cryptographic Ecosystem

Crypto Valley Association, the Swiss-based not-for-profit association supporting the development of Blockchain and cryptographic related technologies and businesses, today launched with a number of leading companies and startups as members, including ConsenSys, UBS, PwC, Thomson Reuters, Luxoft, Canton of Zug, and Lucerne University.

Switzerland has established itself as one of the world’s leading countries for digital innovation. Home to hundreds of multinational enterprises, technology companies, and financial institutions, the country boasts world-leading infrastructure, a sophisticated workforce, and one of the world’s most decentralized, stable and neutral political systems.

Headquartered in the Swiss canton of Zug, Crypto Valley Association is the independent, government-supported association established to take full advantage of Switzerland’s strengths to build the world’s leading blockchain and cryptographic ecosystem, working with government to foster the development of pioneering digital technologies in Switzerland and internationally. The association will support startups and established enterprises through policy recommendations, initiating and enabling research projects, and organizing conferences, hackathons, and other industry events.

“Emerging technology such as Blockchain and Crypto-technologies are at the heart of the digital transformation of Financial Services. PwC have explicitly made digital one of our key priorities and support a number of initiatives around the world to foster innovation. By supporting and being part of the Crypto Valley in Switzerland, we engage with a rapidly growing ecosystem and contribute our expertise and perspectives on how to leverage technology for positive change in society,” said Manoj Kashyap, Global FinTech Leader for PwC.

Read more about the Crypto Valley Association.

The Client onboarding process – how to provide state-of-the-art support

At first glance, client onboarding seems to be a simple and fast process. But apart from high client expectations and tedious internal processes, increasing regulatory requirements – such as the Foreign Account Tax Compliance Act (FATCA) or the Markets in Financial Instruments Directive II (MiFID II) – have also turned it into a highly complex, customised process for every single prospective client. This could lead to banks spending weeks or even months running complex approval processes and having to let the client wait until an initial transaction can be made over the newly opened account. This leads us directly to the question of how customers, and even employees, can be supported during the process to enable a good customer experience on the one hand and efficiency gains within the company on the other.

Our clients in the banking industry have pointed out that implementation of a new client onboarding process is just one side of the coin (read our previous blog about client onboarding). The flip side is to come up with a support model that guides customers and employees through all upcoming questions during the onboarding process. Providing a consistent support model is also essential to improve the completeness and accuracy of account documentation.

PwC can support you in analysing your current support model, finding the gaps in comparison to best practice solutions, and in implementing an advanced support model into your existing, or new, client onboarding process.

In this blog, we will give you some insight into possible support solutions.

Please don’t hesitate to contact us.

Marc Achhammer
PwC, Director Advisory
+41 78 850 66 66
marc.achhammer@ch.pwc.com

Sandro Ricklin
PwC, Assistant Manager
+41 58 792 20 01
sandro.ricklin@ch.pwc.com

Greece introduces Voluntary Disclosure Programme

On 21 December 2016 a Voluntary Disclosure Programme (VDP) for undeclared income of previous years has been introduced in Greece through Law 4446/2016 (for prior coverage please refer to our blog). The VDP applies to both individuals and legal entities and requires the filing of standard tax returns for all non-declared tax objects. The application of the VDP ensures in principle that no other administrative and/or criminal penalties would be imposed to the taxpayer regarding the tax infringements restored by the VDP.

A decision of the General Secretary of State is still required to be issued for clarifying procedural and practical matters. Please read the analytical Newsalert from PwC Athens.

PwC has a specially dedicated team of experts dealing with the above voluntary disclosure allowing for a swift and cost efficient processing.

For more details, please contact:

Dr.Marcel Widrig
PwC, Partner
marcel.widrig@ch.pwc.com
Anna-Maria Widrig Giallouraki
PwC, Senior Manager
anna-maria.widrig.giallouraki@ch.pwc.com
Thomas Grossen
PwC, Assistant
thomas.grossen@ch.pwc.com

Greece: Voluntary Disclosure Program: Bill approved by Parliament

On 21 December 2016 the bill with title “Ptoxeftikos Kodikas, Dioikitiki Dikaiosyni, Teli-Paravola, Oikiothelis apokalypsi forologiteas ylis parelthondon eton, ilektronikes synallages, tropopoiisseis tou N. 4270/2014 kai loipes diataxeis” was voted by the Greek Parliament.

The final text is, apart from some small changes predominantly referring to the timing of payment of the tax, basically unchanged compared to the draft bill. Please refer to our blog dated 14 December 2016.

The bill still needs to be published in the Government Gazette.

A more analytical Newsalert will follow shortly.

PwC has a specially dedicated team of experts dealing with the above voluntary disclosure allowing for a swift and cost efficient processing.

For more details, please contact:

Dr.Marcel Widrig
PwC, Partner
marcel.widrig@ch.pwc.com
Anna-Maria Widrig Giallouraki
PwC, Senior Manager
anna-maria.widrig.giallouraki@ch.pwc.com
Thomas Grossen
PwC, Assistant
thomas.grossen@ch.pwc.com

Swiss Council of States to resolve upon new Financial Services Act (FinSA) and Financial Institutions Act (FinIA)

On 14 December 2016 the Council of States (Ständerat) passed the bill relating to the new Financial Services Act (FinSA) and the Financial Institutions Act (FinIA) thereby largely adapting the proposal made by its Commission for economy and taxes (WAK-S). The bill in its current state contains some significant changes made to the original draft of the bill issued by the Federal Council (Bundesrat) in November 2015. The National Council (Nationalrat) will now take over and should be debating the bill in its spring session in 2017. Given the momentum the legislative process has now gained due to the surprisingly speedy resolution of the Council of States, the bill might be finalized in the course of 2017 and eventually come into force in early 2018. In expectation of a soon-to-be finalization of the bill, affected financial services providers and institutions should now start to engage in serious preparation and implementation efforts.

Read more…

 

Please call us for a free consultation.

Günther Dobrauz
Partner
Leader Legal FS Regulatory &
Compliance Services
+41 58 792 14 92
guenther.dobrauz@ch.pwc.com

Jean-Claude Spillmann
Senior Manager Legal FS Regulatory &
Compliance Services
+41 58 792 43 94
jean-claude.spillmann@ch.pwc.com

Simon Schären 
Manager Legal FS Regulatory &
Compliance Services
+41 58 792 14 63
simon.schären@ch.pwc.com

Greece: Voluntary Disclosure Programm: Draft Bill submitted to the Parliament

On 12 December 2016 the draft bill with title “Ptoxeftikos Kodikas, Dioikitiki Dikaiosyni, Teli-Paravola, Oikiothelis apokalypsi adiloton eisodimaton, ilektronikes synallages, tropopoiisseis tou N. 4270/2014 kai loipes diataxeis” was submitted to the Greek Parliament.

This draft bill also includes provisions on the voluntary disclosure of undeclared taxable income. As preliminary remarks (subject to the finalisation of the bill and/or further clarifications from the Ministry of Finance), the key points for Greek tax residents with undeclared income in Greece and/or abroad can be summarised as follows:

  • Greek taxpayers will have the possibility to legalise income which has been so far undeclared or not duly/accurately declared (legalisation process called for simplification purposes “Voluntary Disclosure Program” VDP)
  • This VDP can cover income for which the obligation to file the initial tax return had elapsed up to 30 September 2016
  • The legalisation will be done by way of submission of tax returns (by hand or electronically) by 31 May 2017. The tax due is in principle payable within 30 days from the submission of the tax return.
  • The amount of main tax due by the taxpayer within the VDP will depend on the year when the income needed to be declared, and the tax due will be calculated based on the applicable tax scale.
  • In addition to the main tax based on scale, an additional tax of 10% (of the main tax due) is levied. This additional tax can be reduced to 8% in case the tax return is submitted earlier, up to 31 March 2017.
  • The additional tax of 8% or 10% is then re-adjusted based on a specific table, depending of the calendar year in which the deadline for submission of the initial tax return had elapsed. The older the year, the higher the readjustment rate (e.g. for years prior to 2002 the readjustment rate of the additional tax is 25% while for years after 2010 the readjustment rate of the additional tax is 0%).
  • The additional tax can then be further increased depending on whether the taxpayer has an open tax assessment and its stage in the process.
  • For amounts declared under the above VDP no further penalties or criminal prosecution for tax evasion will be imposed.

PwC has a specially dedicated team of experts dealing with the above voluntary disclosure allowing for a swift and cost efficient processing.

For more details, please contact:

Dr.Marcel Widrig
PwC, Partner
marcel.widrig@ch.pwc.com
Anna-Maria Widrig Giallouraki
PwC, Senior Manager
anna-maria.widrig.giallouraki@ch.pwc.com
Thomas Grossen
PwC, Assistant
thomas.grossen@ch.pwc.com

Part 3/3: Client Onboarding Process – it’s all about efficiency, effectiveness and client experience

Key benefits from a front-to-back onboarding process

In our last two blogs, you have read about why banks are thinking about redesigning their onboarding processes  and we provided insight about the 7 steps to come up with a streamlined, highly digitalized onboarding process.

On our journey to bring your onboarding process to the next level, we will realize the following 5 key benefits:

1One front-to-back process: Information flows seamlessly from front to back and allows for real time status reports

2Transparency with regard to guidance and support: Problems are addressed in a structured manner and a clear escalation process is established

3Time efficiency: The streamlined process reduces throughput time dramatically, leading to a better client experience and reduces costs

4Digitization and automatization: The new process maximizes compliance through minimizing human errors and providing a clear audit trail

5Clear and insightful metrics: They allow for a clear benchmarking between different teams and are the basis for continuous improvements

PwC understands that your bank has individual needs and that the ideal solution for how clients enter your firm will thus also look different from the competition. A streamlined Target Operating Model for your onboarding process will allow you to leverage these special traits in order to deliver a compliant process with a superior customer experience efficiently. PwC is looking forward to supporting you on this journey.

Please contact our experts:

DaanDr. Marcel Tschanz
PwC Partner Advisory
marcel.tschanz@ch.pwc.com
+41 79 540 60 80

DaanMarc Achhammer
PwC Director Advisory
marc.achhammer@ch.pwc.com
+41 78 850 66 66

Or our specialists:

DaanSandro Ricklin
PwC Advisory Assistant Manager
sandro.ricklin@ch.pwc.com
+41 58 792 20 01

DaanMichael Hunkeler
PwC Advisory Assistant
michael.hunkeler@ch.pwc.com
+41 58 792 16 03

Part 2/3: Client Onboarding Process – it’s all about efficiency, effectiveness and client experience

7 steps to build your streamlined, highly digitalized onboarding process

CyberThreatLandscapeSwitzerlandYou are struggling with a sclerotic onboarding process that is coming to its limits not only because of new regulations, but also in terms of user experience and effectiveness (Part 1/3)? PwC is providing you with a 7 step approach to transform your client onboarding into a streamlined, customizable and highly digitalized onboarding experience.

1. Status quo assessment
2. Define a vision of your future process
3. Realize improvements on different Levels
4. Cut through silos
5. Launch a pilot
6. Rollout overarching
7. Evaluate and improve process based on metrics

Get more insights about the  7 steps.

 

Please contact our experts:

DaanDr. Marcel Tschanz
PwC Partner Advisory
marcel.tschanz@ch.pwc.com
+41 79 540 60 80

DaanMarc Achhammer
PwC Director Advisory
marc.achhammer@ch.pwc.com
+41 78 850 66 66

Or our specialists:

DaanSandro Ricklin
PwC Advisory Assistant Manager
sandro.ricklin@ch.pwc.com
+41 58 792 20 01

DaanMichael Hunkeler
PwC Advisory Assistant
michael.hunkeler@ch.pwc.com
+41 58 792 16 03