Implementing Interest Rate Risk in the Banking Book (IRRBB) in Switzerland

The Basel Committee on Banking Supervision (BCBS) finalised its Pillar 2 capital framework for Interest Rate Risk in the Banking Book (IRRBB) in April 2016. The new framework replaces its previous version from 2004 and sets out nine principles for banks and three principles for supervisors for the management and supervision of IRRBB. FINMA proposed in a consultation in Q4 2017 to adapt IRRBB in Switzerland effective 1 January 2019.

To read more about the FINMA implementation of IRRBB, the action points for banks and how PwC can help click on the following link:k:

Read more

Your contacts at PwC

Andrea Martin Schnoz
Director Assurance
andrea.schnoz@ch.pwc.com
Tel. +41 58 792 23 35

Dr Manuel Plattner
Director Advisory
manuel.plattner@ch.pwc.com
Tel. +41 58 792 24 44

Philip van Hövell
Senior Manager –
Data Analytics & Modelling
philip.van.hoevell@ch.pwc.com
Tel. +41 58 792 10 76

Dr Sebastian Gerigk
Senior Manager Advisory
sebastian.gerigk@ch.pwc.com
Tel. +41 58 792 29 46

F10 FinTech Incubator & Accelerator announces next selection of top-notch start-ups

For the third time since launching the scheme in September 2016, Switzerland’s leading FinTech space, F10 Incubator & Accelerator, has selected 15 promising new start-ups for its successful six-month “Prototype to Product (P2P)” program. Within the program the start-ups receive support and guidance in transforming their ideas into successful companies and in connecting with international finance organisations.

International start-up quality in Switzerland
The intense selection process for Batch III was again executed by founding member PwC Switzerland, together with its six fellow corporate partners SIX, Julius Bär, Generali Group Switzerland, Baloise Group, Zürcher Kantonalbank and Raiffeisen. Between September and December 2017 a total of 262 start-ups from over fifty countries worldwide applied for one of the coveted places in the upcoming program.

After an intensive five days, with 62 online interviews and two days of life pitches by the top 26 start-ups at the F10 facility in Zurich, the seven corporate partners agreed to officially invite the following 15 start-ups (including three corporate-internal teams) to the next Batch, starting on 5 March 2018:

  • Anansi insurance platform for high-growth SMEs with an international supply chain of physical goods
  • Baasis ID all-in-one identity verification (KYC) platform for FinTechs, crypto wallets and exchanges, and government agencies
  • BDEO streamlined operational processes for insurance claims for companies in Europe and South America
  • Borderless blockchain-powered international payment systems for businesses, governments and banks
  • C2SEC cyber risk analytics for insurance companies and enterprises
  • Dynametrics modernized credit processes for banks and credit institutions
  • eHyve centralised, consolidated financial overview for consumers
  • Qard data collection and insights for small online e-commerce
  • Luminant simplified reinsurance for the automotive insurance industry
  • Monday platform which enables small businesses to manage administrative tasks simply and efficiently
  • Safeside 3-click life insurance purchases for consumers
  • SIX IoT programmable eCommerce platform, neutral for suppliers, personalised for consumers
  • Susfinteq EU-China ESK risk assessment using AI for banks and financial institutions
  • Target Insights advanced analytics for wealth managers
  • Vestberry SaaS information management for the private equity industry

Involvement in the F10 FinTech Incubator & Accelerator is one of PwC Switzerland’s core initiatives to attract innovative and exciting new ideas to Zurich and the Swiss financial services industry. In these fast-changing, disruptive times, in which new business models are created and rolled out in ever shorter cycles, start-ups and their way of addressing challenges represent a source of inspiration no business should ignore. Active and close cooperation with these groups of entrepreneurs at an early stage enables PwC Switzerland not only to bring interesting, relevant ideas to our clients, but also ensures that our firm comes into contact with revolutionary technologies and stays ahead of the ongoing digital progress.

What it takes
Crucial for our selection is the start-up’s team and its configuration: a discordant team with the right idea will never succeed, but the right team, with an idea that is still developing and the right guidance, will achieve its objectives. A broad skillset, eagerness and willingness to accept advice or even pivot the idea if necessary, and the desire for a market-ready, adoptable solution: teams exhibiting these qualities are the ones we want to foster and support with our extensive industry and corporate knowledge.

PwC Digital has identified a number of potentially interesting solutions and great teams, which we intend to follow closely once the Batch starts in 2 weeks. We will introduce some of these start-ups and their ideas to you in more detail via this channel as the program evolves.

We are looking forward to an inspiring few months ahead and the delivery of exciting Minimal Viable Prototypes (MVPs) in August 2018.

If you have any questions please feel free to contact our F10 mentors Frederik Gregaard or Sandro Tarchini.

About F10
Based in Zurich, the F10 accelerator program was established by SIX Group in 2015 to promote Switzerland’s FinTech ecosystem, strengthen the innovative capacity of the Swiss finance and insurance sectors, and forge global links. It has been designed for financial firms that want to reach the next level of innovation, providing access to the most promising international FinTech start-ups, radically new technologies and business models. In September 2016, PwC Switzerland and Bank Julius Bär became joint corporate founding members of the association, with the overarching objective of providing a lasting contribution to the development of a state-of-the-art, future-fit Swiss financial sector.

 

Contacts:

Frederik Gregaard
Head of the PwC Switzerland Digital Accelerator
+41 58 792 24 81
frederik.gregaard@ch.pwc.com

Sandro Tarchini
Advisory Consulting Digital
+41 58 792 23 49
sandro.tarchini@ch.pwc.com

US Tax Reform – Impact on US individual owners of foreign corporations (entrepreneurs and small business owners) residing outside of the United States

In an effort for the United States to become fiscally competitive on the world stage, the new US Tax Reform included provisions to move towards a territorial tax system by imposing a “toll tax” on undistributed profits on US-owned foreign corporations. Its purpose is particularly meant to stimulate the economy by motivating corporations to repatriate cash generated from previously untaxed profits abroad to invest in the economy and create jobs.

The following comments will provide a high level overview of the adverse and unfortunate effects US individual shareholders of foreign corporations will endure from the new toll tax and GILTI rules in comparison to US corporate shareholders.

Effective for the last taxable year of a foreign corporation that begins before January 1, 2018, the “toll tax” is a one-time tax of 15.5% on aggregate cash balances and 8% on all other undistributed profits earned since 1987 on the balance sheet of a foreign corporation as of December 31, 2017 or November 2, 2017, whichever is higher. Consequently, future dividend distributions to its US parent will be free from US taxes thus achieving the “territorial tax regime”.

Many of us may have read the headlines on how this toll tax, also referred as the Repatriation Tax, affects US corporate shareholders of foreign corporations, (e.g. Goldman Sachs, Apple: news article) However, the toll tax also applies to US individual shareholders of a foreign corporation that is a Controlled Foreign Corporation (a “CFC”).

A foreign corporation is a CFC if US shareholders own more than 50% of the total combined voting power of its stock or more than 50% of the stock’s total value. For this purpose, the law defines a US shareholder as any US person who owns 10% or more of a foreign corporation, including a US citizen, a green card holder or an individual who meets the physical presence test (or elects) to be considered as a tax resident of the United States. These rules also apply if a US person resides outside the United States due to the preservation of the worldwide tax regime for US individuals.

The method to arrive at the toll tax liability is relatively complex. The 15.5% and 8% effective rates are in fact prescribed as “equivalent percentages”. A deduction based on the US corporate tax rates is used to arrive at these effective rates. To the extent the toll tax is due for a CFC as of December 31, 2017, the deduction is based on the 2017 corporate tax rate of 35% (max) rather than the individual rate of 39.6% (max) and US individuals will have to follow that same corporate rate deduction mechanism using the 35%, not the individual rate. Hence, US individual shareholders of a CFC will bare a higher toll tax burden than that of a US corporate shareholder. While this provision provides for partial foreign tax credits to decrease the net toll tax due of US corporate shareholders, individuals are not allowed to claim foreign tax credits to reduce their net toll tax liabilities. In addition, US individuals will continue to pay US taxes on future dividend income, not previously taxed, received from their CFCs as the new dividend exemption only applies for US corporate shareholders.

An election to pay the toll tax liability in installments over an 8-year period is available and if such election is made, the first payment is due by the original due date of the shareholder’s 2017 US tax return determined without regard to any extension i.e. April 15, 2018 for a calendar year taxpayer. To date, it is unclear if individual US shareholders residing abroad will be allowed the regular automatic extension until June 15, 2018 to make their first toll tax payment.

Also included in the US Tax Reform are the GILTI implications. Going forward, applicable for the first tax year of a CFC beginning after December 31, 2017, the US will also require individual shareholders of the CFC to include in their annual taxable income a “global intangible low-taxed income” or GILTI; which notwithstanding its name, is not limited to intangibles nor low-taxed income. Prior to the GILTI rules, CFCs with active business income used to qualify for deferral from US taxes and received qualified dividend treatment (preferential tax rates if from a treaty country) at the time profits were distributed to their US shareholders.

The GILTI rules practically eliminate the active business income deferral. The treatment for US corporate shareholders is again different from that of a US individual. While a 50% deduction will be allowed to reduce the annual taxable GILTI including an available 80% deemed foreign tax credit against the GILTI tax for US corporate shareholders, US individuals subject to the GILTI tax will not benefit from such deduction nor the foreign tax credit. Accordingly, it is strongly recommended that the current organizational structure, involving a CFC with a 10% or more US individual shareholder (resident in or outside the United States), is carefully reviewed under the new rules all the while exploring certain available elections permitted by the IRS.

Every circumstance is different and the new rules are extremely complicated. Although US tax practitioners are still waiting for more guidance from the IRS and how it will particularly impact their clients, it is uncertain if the impact on individuals will be addressed further. It is crucial for US individual shareholders of foreign corporations to work closely with their advisors to consider potential planning opportunities on how they can reduce, or prepare for, these additional tax burdens.

If you have any questions or wish to discuss, our US tax experts at PwC in Switzerland are available to assist.

Contact Us

Richard Barjon, CPA
PwC | US Tax Director
+41 58 792 13 53
richard.barjon@ch.pwc.com

US Tax Reform from a Swiss US investors perspective

Wednesday, March 14, 9:30 am -1:30 pm, PwC Bern

PwC is pleased to host a seminar with the Embassy of the United States and K&L Gates followed by a luncheon, on the U.S. Tax Cuts and Jobs Act signed by President Trump in December 2017. Tax professionals from PwC Switzerland and K&L Gates of South Carolina will highlight the implications of the U.S. federal tax code changes for current and future Swiss and Liechtenstein investors and U.S. companies operating in Switzerland

When: 

Wednesday, March 14, 9:30 am -1:30 pm, PwC Bern,  Bahnhofplatz 10, 3001 Bern.

What:

  • “US Tax Reform in a Nutshell & How US Tax Reform impacts doing business and investments between the US and Switzerland”
  • “It’s a competition: Understanding the State and Local Incentive Process”
  • “Impact on European inbound US investment – One State’s Perspective”

The detailed agenda of the event will be provided upon registration.

Attire: 

Business

Registration:

Kindly respond by March 5 to Mr. Sandor Galambos, galamboss@state.gov or 031 357 7237 or Nathalie Fretz, nathalie.fretz@ch.pwc.com

Contact Us

Martina Walt
PwC | Partner – International Tax Services
Office: +41 58 792 68 84 | Mobile: +41 79 286 60 52
Email: martina.walt@ch.pwc.com
PricewaterhouseCoopers Ltd
Birchstrasse 160, 8050 Zurich
http://www.pwc.ch

Disclose 27, Focus piece 2: Report on the lodging and tourism industry

Disclose – PwC’s online magazine

«It takes people, digital technologies and trust to achieve top performance.»

Reading our latest issue of Disclose (disclose.pwc.ch/27/) you’re sure to get an adrenaline rush as we investigate a topic with particularly close connections to sport: high-performing organisations.

Focus piece 2 gives you an insight into the report on the lodging and tourism industry:

Despite the strong franc, Switzerland has been able to maintain its reputation as a top destination in recent years. But for how much longer? To satisfy the high expectations of their guests, tourism providers have to offer them a lot for their money. This calls for clearly positioned offerings and high-quality service. With well-trained staff, intelligent big data tools and smart cooperation, operators can provide people with authentic experiences and gain loyal customers and new market share in lucrative segments. To do this they need to aspire to perfection but at the same time be willing to accept that you can’t make every guest segment happy at the same time.

Read the full report here.

Contact

Nicolas Olivier Mayer
Partner, EMEA Industry Leader Lodging & Tourism, PwC Switzerland
nicolas.mayer@ch.pwc.com
Tel. +41 58 792 21 91

FINMA publishes Initial Coin Offering (ICO) guidelines

In its media release of 16 February 2018 the Swiss Financial Market Supervisory Authority FINMA published its long-awaited guidance on Initial Coin Offerings (ICO) which defines the minimum information required and principles for requests for negative clearance.

An ICO is a digital form of public fund-raising for entrepreneurial purposes. Blockchain-based “coins” or “tokens” are sold in exchange for cryptocurrencies (e. g. Bitcoin) or FIAT currencies. The token represents a certain value or service that the issuer defines prior to the ICO.

In its media release of 29 September 2017 FINMA already acknowledged the innovative potential of this technology and pointed out to intersections between ICOs and the applicable financial market laws. In its new guidance FINMA rightly points out that generalized statements with respect to the applicability of financial market laws is not possible due to the variety of tokens and ICOs. Instead, every ICO must be assessed individually on a case-by-case basis.

Types of token

FINMA basically distinguishes between three different types of tokens (although hybrid forms are possible):

  • Payment tokens: These are considered standard crypto currencies. They can be used as means of payment for the purchase of goods or services as well as for the transfer of money and values. They are not associated with any other functions or projects.
  •  Utility tokens: They provide access to a blockchain-based applications or services.
  • Investment tokens: These tokens represent assets (such as shares of companies, revenues or entitlements to dividends or interest payments). Depending on its design, this type of token is similar to a share, bond or derivative financial instrument.

Legal assessment

FINMA came to the conclusion that it is particularly the Anti-Money Laundering and securities regulations that are concerned with respect to ICOs. Conversely, the Banking Act (“BA”) and the Collective Investment Schemes Act (“CISA”) are typically not concerned.

Based on the functionality of the various tokens FINMA makes the following legal considerations with respect to ICOs:

  • Payment ICOs: Payment tokens fall within the scope of the Anti-Money Laundering Act (“AMLA”) but do not qualify as securities under the Financial Markets Infrastructure Act (“FMIA”) and the Securities Trading and Exchange Act (“SESTA”).
  •  Utility ICOs: Utility tokens are basically not qualified as securities provided that they are intended to provide access digitally to an application or service and may be used in this capacity at the moment of issuance. Conversely, if a utility token is also used for investment purposes it is qualified as security.
  •  Asset ICOs: Asset tokens are treated as securities by FINMA.

Combinations of the various types are also possible.

FINMA recognizes the innovation potential of ICOs and the block chain technology but also highlights risks that result for investors.

Contact Us

Günther Dobrauz
Partner
Leader PwC Legal Switzerland
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Tina Balzli
Head Banking
Director
Legal FS Regulatory & Compliance Services
+41 58 792 15 54
tina.balzli@ch.pwc.com

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

Mark A. Schrackmann
Assistant Manager
Legal FS Regulatory and Compliance Services
+41 58 792 25 60
mark.schrackmann@ch.pwc.com

Orkan Sahin
Assistant Manager
Legal, FS Regulatory & Compliance Services
+41 58 792 19 94
orkan.sahin@ch.pwc.com

How did the Swiss real estate industry start into the year 2018?

PwC – Immospektive Q1/18

The strength of the Swiss economy gives hope for positive impacts to the real estate market, or at a minimum to the current problem sectors of office and retail. The supply on the housing market has continued to grow which has led to an increase in the forecast vacancy rates and a decrease in market rents. Furthermore, it is assumed that interest rates will rise moderately in the long run.

Read more and get up to speed with us

Contact

Kurt Ritz
Partner, Real Estate Advisory
+41 58 792 14 49
kurt.ritz@ch.pwc.com

Marie Seiler
Director, Real Estate Advisory
+41 58 792 56 69
marie.seiler@ch.pwc.com

Samuel Berner
Real Estate Advisory
+41 58 792 17 39
samuel.berner@ch.pwc.com

 

IFRS News January 2018

Our latest IFRS News contains some information about the US Tax reform, IFRS IC decision, cryptocurrency and more.

US Tax reform – accounting under IFRS

President Trump signed into law on 22 December 2017 extensive changes to the US tax system. These changes are substantively enacted for accounting purposes in 2017 and should be reflected in the financial statements at 31 December 2017.

IFRS News – January 2018

IFRS IC decision on interest and penalties related to income taxes

The IFRS Interpretations Committee (IC) issued an agenda decision in September 2017 on interest and penalties related to income taxes.

IFRS News – January 2018

IFRS Blog: Accounting for Cryptocurrency

Guest blogger Gary Berchowitz, PwC Partner discusses the issues of the month: What is cryptocurrency? So what’s the accounting issue? What is wrong with today’s accounting?

IFRS News – January 2018

Cannon street press

The January 2018 IASB Update has been published and the work plan updated.

IFRS News – January 2018

Read last quarter’s IFRS News issue from October 2017

Read more

Disclose – PwC’s online magazine

Reading our latest issue of Disclose you’re sure to get an adrenaline rush as we investigate a topic with particularly close connections to sport: high-performing organisations.

Read more about “IFRS: the impact of IFRS 15 on your financial statements prepared under the Swiss Code of Obligations” in our latest Disclose 27 issue here.

Far-reaching consequences of disruptive innovations for the Liechtenstein financial market

The Liechtenstein financial market has demonstrated its ability to adapt in recent years by keeping pace with changing framework conditions. Financial industry stakeholders manage more assets today than before the outbreak of the financial crisis. Liechtenstein remains as attractive as ever as a location for private banking and wealth management. The Principality of Liechtenstein is not the only country in which the financial sector is undergoing fundamental change. Digitisation is the main driver of this transformation, and banks are the hardest hit. More and more so-called “digital disruptors” are offering banking services without actually choosing to adopt a banking model themselves.

The challenge of digitisation

Customer behaviour and expectations have evolved. New competitors (e.g. FinTechs) and new technologies (e.g. blockchain) are provoking a fundamental shift in the business model of banks. Digitisation offers new opportunities, but also generates risks. Traditionally structured banks operate an integrated business. They sell products that they have developed themselves via their own distribution channels. All transaction and support services are provided internally. In contrast, new technologies enable a high degree of standardisation to be achieved, leading to a fragmentation of the value chain. According to the PwC Global FinTech Report 2017, 82% of the study participants questioned want to enter into partnerships with FinTech companies within the next three to five years. 77% expect blockchain technology to have become a part of their company’s productive system environment by 2020. Banks in Liechtenstein will not be able to escape this development. They need to carefully analyse the strategic options for action before putting appropriate measures into practice.

Attractive framework conditions

The government is supporting technological change by means of its “Impuls Liechtenstein” programme and the “Regulatory Laboratory” set up within the Financial Market Authority Liechtenstein (FMA). The FMA pursues a forward-looking regulation policy in line with European law. The team of experts from the Regulatory Laboratory advises financial intermediaries at the interface between regulations and the market. At statutory level, modifications have been made to banking legislation which permit the needs-based approval of service providers. Furthermore, there are specific statutory provisions applicable to payment and electronic money institutions. In addition, service providers and organisations benefit from private initiatives which help to establish extensive networking within the FinTech industry in Liechtenstein.

Healthy prospects

There are healthy prospects for overcoming the technological transformation. Liechtenstein as a financial centre has significant expertise in the field of finance, responds rapidly thanks to its short decision-making channels, and is capable of implementing practical solutions. This creates stability and legal certainty. These are good basic conditions to ensure its continued survival in a competitive environment in such fast-moving times. In the future, financial intermediaries will however be required to prove their ability to adapt more than ever before.

Contact

Martin_Meyer_09723
Claudio Tettamanti
PwC | Partner | Market Leader Liechtenstein
Office: +423 233 10 02
Mobile: +41 79 696 45 89
Email
PricewaterhouseCoopers GmbH
Austrasse 52 | Postfach | FL-9490 Vaduz

FINMA revises circular on video and online identification

On 18 March 2016, the Swiss Financial Supervisory Authority FINMA brought into force the circular 2016/7 “Video and online identification”. Since then, financial intermediaries have been able to identify new clients digitally, in addition to face-to-face meetings or the opening of a client relationship by correspondence.

In its media release of 13 February 2018, FINMA announced that due diligence obligations in the area of digital client on-boarding are being adapted to technological developments. The draft of the partially revised circular includes the following innovations in particular with regard to the digital identification of new clients:

Video identification

  • In order to ensure secure identification and make the use of counterfeit ID cards more difficult, financial intermediaries should now check at least three randomly selected optical security features of the ID documents (e. g. holograms, laser-tilt images, security thread, micro text, etc.);
  • The formal characteristics (e. g. layout, orthography, font, etc.) are to be compared with references from an identity card database;
  • The verification of the contracting party in the identity process using a one-time password (TAN) will no longer be required;
  • The identification process should now be allowed to continue even if there are indications of increased risks. However, the business relationship shall only be established after additional clarification and approval of a superior person/ management.

Online identification

  • Financial intermediaries should be encouraged to obtain a photograph from all relevant pages of the identification documents. Similar to video identification, the comparison with an ID card database should also be required for the online identification;
  • As an additional safety element, a liveness detection is required;
  • A money transfer from a bank in Switzerland shall no longer be a mandatory requirement. Under certain conditions, money transfers from banks in Liechtenstein or a member state of the Financial Action Task Force on Money Laundering (FATF) should also be sufficient.

FINMA holds a hearing until 28 March 2018. As soon as the revised circular will enter into force, financial intermediaries are required to adapt their video and online identification process within 6 months.

Contact Us

Günther Dobrauz
Partner
Leader PwC Legal Switzerland
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Tina Balzli
Head Banking
Director
Legal FS Regulatory & Compliance Services
+41 58 792 15 54
tina.balzli@ch.pwc.com

Stephanie Kok
Manager
Legal FS Regulatory & Compliance Services
+41 58 792 48 94
stephanie.kok@ch.pwc.com

Mark A. Schrackmann
Assistant Manager
Legal FS Regulatory and Compliance Services
+41 58 792 25 60
mark.schrackmann@ch.pwc.com