How can Swiss companies turn into digital operations champions?

PwC Global Industry 4.0 Study 2018

Get the Swiss results here.

Digital transformation is the most critical challenge for industrial companies worldwide. PwC’s new study “How to Be a Digital Operations Champion – Global Industry 4.0 Study 2018” shows that as far as Swiss companies are concerned, they have not quite exploited their full potential yet.

The study evaluates the digital ecosystems of companies and to what extent new technologies have been implemented. At the same time it highlights the influence of new technologies on the workforce and corporate culture. The companies that were included in this study were also asked about the digitalisation projects they were planning to realise over the coming five years. The study is based on a survey of 1,155 industrial companies in 26 countries around the world – with a separate country report on Switzerland.

One conclusion of the study is that world-class digital champions are relatively rare in Switzerland, and too many Swiss businesses consider themselves digital novices. The Asia/Pacific region is leading the digital transformation, Europe, generally, is struggling to keep up.

Using digital technology is crucial to be able to compete. Over 40% of companies have already implemented key new technologies, over 70% are planning to do so over the next five years. Revenue increases of 15% and efficiency gains of 12% are expected from digital technology implementation over the same period.

The use of new technologies can therefore bring tangible competitive advantages. Plans for digital solutions and their subsequent introduction are focusing on areas such as predictive maintenance of assets and products, integrated end-to-end supply chains and the use of robotics.

Graph 1: Benefits of Investing in Digital Technologies. Average benefits over the next five years by world region.

Digital champions, i.e. around 10% of global manufacturing companies, are offering their customers digital ecosystems that link their operations and technology to their customers. New technologies are being deployed comprehensively to enable collaboration along the entire value chain. Digitalisation offers large companies the opportunity to increase production in mature markets and close to customers.

Regional differences indicate that the Asia/Pacific region is leading the digital transformation. APAC companies are most advanced on the path to digitalisation and highly optimistic about the benefits of applying digital technologies (58%). American companies (54%) are positioned slightly behind Asia, while Europe (42%) is struggling to keep up.

Manufacturing execution systems and robotic process automation are rather wide-spread among Swiss companies. At the same time, their digital corporate culture is well advanced. However, when it comes to integrated end-to-end supply chain planning and artificial intelligence, the Swiss are lagging behind their competitors, in particular compared to Asian and American companies. The 50 Swiss companies interviewed in the study are markedly less digitalised than their international competitors. Too many Swiss businesses consider themselves digital novices, and digital champions are relatively rare in Switzerland. Exhibiting their confidence in the new technologies, Swiss industry decision-makers are expected to take considerable steps towards a more stringent implementation of Industry 4.0 over the next five years. In addition, a trend towards shifting certain production steps back to Switzerland is gaining momentum.

Roger Müller, Head Digital Operations PwC Switzerland, explains: “Of the Swiss respondents, almost half (41%) believe that the future will see more products produced in their own country. Increased automation could support Switzerland’s competitiveness by lowering production costs and allowing companies to move production back to mature markets and thus closer to their customers.”

Graph 2: New technologies: what is the Swiss status quo? Question: To what extent have you implemented the following technologies within your company? (50 companies in Switzerland, in comparison with 1,155 companies worldwide)

Artificial intelligence, a widely-discussed topic, is beginning to be implemented. A mere 15% of companies worldwide – and only 1% in Switzerland – are on record for already having implemented or piloted AI solutions, mainly in the areas of production and R&D. Artificial intelligence has the potential to revolutionise the quality of operational decision-making. The challenges of introducing artificial intelligence solutions are that employees are unfamiliar with these new technologies, which makes their implementation challenging and their benefits uncertain. What is more, there is a lack of transparency and trust. In many cases, the technology in question is not mature enough and usable solutions are not yet ready for the market.

 

Register here to download the study

PwC’s Experience Center Opening, 14 June 2018

Would you like to learn more? Participate in the Grand Opening of PwC’s Experience Center. For more information click here.

 

Contact

Roger Müller
Head Digital Operations
PwC Schweiz
Tel. +41 58 792 16 37
roger.mueller@ch.pwc.com

Revised rules on tax at source to enter into force on 1 January 2021

On 15 December 2016, parliament finally passed amendments to the rules on taxation at source in the form of the federal act on the revision of taxation of earned income at source. On 11 April 2018, the Swiss Federal Council passed the Federal Department of Finance’s fully amended ordinance on taxation at source. Both sets of rules enter into force on 1 January 2021.

The ordinance on taxation at source concretises the new law. It contains hardly any surprises compared against the consultation, concluded in December 2017. Anyone subject to tax at source who is resident in Switzerland must, as previously (in most cantons), file a tax return if their income exceeds the threshold of CHF 120,000 (retrospective ordinary assessment). Anyone else in Switzerland with a lower income can apply to do so voluntarily.

Application in cases of quasi-residence

People resident abroad can only apply to file a tax return if they are quasi-resident in other words if 90 per cent of their global income is taxed in Switzerland. Recent court rulings relativise this figure of 90 per cent, which also means the procedure changes for people with quasi-resident status applying to file a return. They must make the application before the prescribed deadline (31 March of the following year). However, the decision is made on the basis of the tax return submitted.

The most important changes in brief

» Tariffs

Tariff D (secondary employment) is being abolished as part of the tax at source procedure on data privacy grounds. This means that all employers of a person subject to tax at source who has more than one position as an employee have to levy tax at source at the regular tariff. The regular tariff is converted to 100 per cent of the income, or 180 hours per month.  The abolition of tariff D also entails the disappearance of tariff O for German cross-border commuters.

However, tariff D will not disappear completely, but will now be used in special cases: for the refund of AHV/AVS contributions (at least one year) if an employee emigrates permanently to a country with which Switzerland does not have a social insurance agreement. In other words this tariff (D) will no longer be used by employers; only by the social security authorities. Employers will likewise not be using the new G and Q tariffs. The persons subject to tax at source drawing replacement income from the insurer, set down in section 2 of tariff D, will now be handled under tariff G. Replacement income is benefits paid directly to the person taxable at source rather than via the employer. In the same situation Tariff Q relates to Germans who have cross-border commuter status.

» Greater onus on employees

The onus is explicitly placed on employees, who must now report new circumstances (e.g. changes in marital status, the birth of children, partner taking up/leaving employment, etc.) to their employer. This is absolutely necessary for the employer to be able to calculate and levy the correct tax at source. Nevertheless, employers will have to inform their employees of this and make them aware of this obligation.

» Further concretisation anticipated

The revised legislation also entails amendments to other ordinances, including the ordinance on expatriates (ExpaV/Oexpa), most of them editorial in nature.

The actual implementation of retrospective ordinary assessments is left very open, with the cantons given considerable room for manoeuvre when it comes to applying these rules. The anticipated circular should create clarity in this respect, as well as containing numerous concrete details of uniform calculation methods for all cantons. Only this way can the amended rules on taxation at source really simplify life for employers.

Contact Us

Brigitte Zulauf
TLS Partner
Leader Corporate Support Services Switzerland, Zurich
+41 58 792 47 50
brigitte.zulauf@ch.pwc.com

QI Account Management System Open for QI Certifications

On 4 May 2018, the Internal Revenue Service (“IRS”) updated the QI account management system and is now officially accepting QI, Withholding Partnerships (“WP”), and Withholding Trusts (“WT”) Certifications. Additionally, the IRS has announced that all QIs, WPs, and WTs must select the Periodic Review year of their certification before 1 September 2018. Please note that this deadline is also applicable for QIs, WPs, and WTs that have selected 2017 as their Periodic Review year.

Details to QI/WP/WT Periodic Review Waiver Applications

The IRS included details about Periodic Review waiver applications in its announcements, stating that all QIs, WPs, and WTs that wish to apply for a waiver must select 2015 as their Periodic Review year, complete Parts I – III of the certification, and submit its waiver application before the 1 September 2018 deadline. If the waiver application is accepted by the IRS, the QI, WP, or WT is not required to perform the Periodic Review. The acceptance or denial of a waiver application will be communicated by the IRS. If a waiver application is denied with less than six months remaining (including extensions) for the QI/WP/WT certification, then the QI, WP, or WT will be granted an additional six-month extension from the date of the waiver application denial, allowing for sufficient time to conduct the Periodic Review and resubmit a certification. Please note that if a QI/WP/WT has had its waiver application denied, the Periodic Review year is 2015. If such a QI/WP/WT wishes to select another year for the Periodic Review, the IRS FI team should be contacted at lbi.fi.qiwpissues@irs.gov. Once the Periodic Review is conducted post waiver denial, the resubmitted certification should include Parts IV and VI (if applicable).

Additional Information

The IRS has updated its certification and Periodic Reviews FAQs. Please refer to this link for access to the current FAQs.

Additionally, QIs, WPs, and WTs should consult Publication 5262 (the QI User Guide) before beginning their certifications, if needed. Publication 5262 can be accessed under this link.

Contact

Bruno Hollenstein
Partner, Operational Tax
+41 58 792 43 72
bruno.hollenstein@ch.pwc.com

Social insurance: updates to the guides issued by the authorities

The guides issued by the Federal Social Insurance Office (FSIO) are daily tools of the trade for people in payroll accounting. Their practical relevance stems above all from the fact that they are up to date and give clear guidance applicable to specific situations and circumstances. The FSIO has updated the guides again in 2018.

Two documents are key for people working in payroll accounting: the WVP/DAA (Wegleitung über die Versicherungspflicht in der AHV/IV), which contains guidance on the AHV/AVS and IV/IS insurance requirements, and the WML/DSD (Wegleitung über den massgebenden Lohn), a guide to the pay applicable for social insurance purposes. The WVP/DAA helps you work out whether there are factors in a particular case suggesting that the person is subject to social insurance in Switzerland. The WML/DSD addresses non-cash employee benefits and clarifies the question of whether and to what extent these benefits are subject to AHV/AVS contributions. Below we summarise the changes that are of most importance in terms of your payroll accounting.

Changes in compulsory social insurance

The updated WVP/DAA takes account of the entry into force on 19 June 2017 of the social insurance agreement with China. This agreement does not cover the special administrative regions Hong Kong, Macao and Taiwan. Given that it only governs the applicable provisions of the law and does not provide for the export of pension benefits, it is deemed to be a bilateral agreement on the secondment of staff.

The biggest change in terms of compulsory social insurance is the use, since 1 January 2018, of the Applicable Legislation Platform Switzerland (ALPS). This online system facilitates communication with employers and the FSIO in connection with compulsory insurance (in particular applications for secondment or continuation of compulsory insurance, and reporting activity in two or more states). Following a pilot phase where various employers and social security authorities worked with ALPS, the system is now going live and must be used by all social security authorities.

The introduction of ALPS is covered in detail in the corresponding official notice (AHV/EL Mitteilung 402). The introduction of ALPS does not entail any changes to the WVP/DAA. The notice also explains various issues in the event of activity in more than one state, for example calculating the materiality limit.

Changes in assessing contributions

The latest edition of the WML/DSD no longer contains rules relating to the demarcation of responsibilities between the AHV/AVS authorities and SUVA when it comes to assessing the status of commercial travellers and contractors (self-employed versus employed status). This is because there is no legal basis. A series of margin numbers have been removed (numbers 1033, 4019, 4033-4044, and 4051-4055).

There are new arrangements governing the treatment for the purposes of contributions of WIR money paid to employees. These payments are subject to contributions in full without a discount. The WML/DSD also specifies that when WIR money is given to employees at a discount (analogous to REKA money), the difference between the value and the value at which it is purchased by the employee is, unlike REKA money, subject to contributions.

Margin number 3007 has once again been made slightly more concrete. Now it clearly specifies how an employer has to treat season tickets for public transport for contribution purposes. What has not changed is the vague formulation to the effect that a season ticket is subject to contributions if business travel is undertaken on 40 days. The question still remains as to whether 40 very short business trips justify the exemption as per margin number 3007. According to the current WML/DSD, the answer to this has to be in the affirmative.

A digression on the WBB/DP

Most HR managers are familiar with the WML/DSD and the WVP/DAA. By contrast, the main people working with the WBB/DP guide on collecting social security contributions (Wegleitung über den Bezug der Beiträge in der AHV, IV und EO) are the social security authorities that implement social insurance. It is therefore fairly rare for changes to the WBB/DP to have a direct impact on HR work within organisations.

However, one of the amendments contained in the latest edition of the WBB/DP (valid as of 1 January 2018) has explosive potential: now margin number 2035.1 on collecting unemployment insurance (ALV) contributions on retrospective salary payments has been added, and margin number 2035.3 has been augmented with an example. This is problematic. For one thing, none of the leading payroll software solutions can accommodate these rules at present. And for another, many specialists see the rule as contradictory and believe that the result of applying it is unacceptable.

Contact Us

Dominic Müller
Senior Manager and Specialist for Payroll & Employment Solutions
Tel. +41 58 792 2002
dominic.mueller@ch.pwc.com

Don’t be caught out by DAC6

The EU is introducing radical measures to tackle tax abuse and ensure fairer taxation by increasing the level of transparency another notch in order to detect potentially aggressive tax arrangements.

The amendment to Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC6 for short) will have far-reaching consequences for tax advisors, service providers and taxpayers – including organisations and individuals in Switzerland.

DAC6 imposes mandatory disclosure requirements for arrangements with an EU cross-border element where the arrangements fall within certain “hallmarks” mentioned in the directive and in certain instances where the main or expected benefit of the arrangement is a tax advantage. There will be a mandatory automatic exchange of information on such reportable cross-border schemes via the Common Communication Network (CCN) which will be set-up by the EU.

Although the directive is not effective until 1 July 2020, taxpayers and intermediaries need to monitor their cross-border arrangements already as of May 2018. Therefore the time to act is now.

DAC6 in a nutshell

Who? Intermediaries such as tax advisors, accountants, banks and lawyers, who design, market, organise, make available for implementation or manage the implementation of potentially aggressive tax-planning schemes with an EU cross-border element for their clients as well as those who provide assistance and advice

What? Mandatory reporting by tax intermediaries (or taxpayers) and the automatic exchange of information by the tax authorities of EU member states via the Common Communication Network (CCN) for a wide range of cross-border arrangements in relation to individuals and entities.

Why? The main purpose of DAC6 is to strengthen tax transparency and fight against aggressive tax planning. It broadly reflects the elements of action 12 of the BEPS project on the mandatory disclosure of potentially aggressive tax-planning arrangements.

How? The potentially aggressive tax planning arrangements with a cross-border element need to be reported by the intermediaries to the tax authorities in the country in which they are resident. The EU member states then will share the information with all other member states via the Common Communication Network (CCN) on a quarterly basis.
If the taxpayer develops the arrangement in-house, or is advised by a non-EU adviser, or if legal professional privilege applies, the taxpayer must notify the tax authorities directly.

Penalties will be imposed on intermediaries that do not comply with the transparency measures. EU member states to implement effective, proportionate and dissuasive penalties.

Find out more about DAC6 and if you are affected online and get in contact with our experts.

Contacts

Monica Cohen-Dumani
Partner
+41 58 792 97 18
monica.cohen.dumani@ch.pwc.com

Bruno Hollenstein
Partner
+41 58 792 43 72
bruno.hollenstein@ch.pwc.com

Australia lowers Managed Investment Trusts (MITs) withholding tax for Swiss investors

Current Situation

Swiss investors currently investing into Australian Managed Investment Trusts (MITs) have not been able to benefit from the reduced 15% withholding tax rate despite Switzerland having implemented the automatic exchange of information with Australia, the reason was that the Australian government had not updated the list of eligible countries yet.

Update of list of countries with beneficial withholding tax rates

The Australian government has now announced that it will update the list of countries whose residents are eligible to access a reduced withholding tax rate of 15 per cent, instead of the default rate of 30 per cent, on certain distributions from Australian MITs. Listed countries are those which have established the legal relationship enabling them to share taxpayer information with Australia. The update will add the 56 jurisdictions that have entered into information sharing agreements since 2012.

Effective from 1 January 2019

The updated list will be effective from 1 January 2019. This measure supports the operation of the MIT withholding tax system by providing the reduced withholding tax rate only to residents of countries that enter into effective information sharing agreements with Australia.

Take away

Swiss investors investing in Australian MITs should ensure that they will benefit from the reduced tax rates. For certain structure the investment through an MIT might become an attractive alternative given the lower withholding tax rate.

We are happy to review your Australian investment structure to ensure they are as tax efficient as possible.

Contacts

Victor Meyer
+41 58 792 43 40
victor.meyer@ch.pwc.com

Benjamin De Zordi
+41 58 792 43 17
benjamin.de.zordi@ch.pwc.com

Regula Haefelin
+41 58 792 25 24
regula.haefelin@ch.pwc.com

Silvan Amberg, CFA, CAIA
+41 58 792 44 59
silvan.amberg@ch.pwc.com

New Era in China ushering in new business opportunities

In his keynote speech at the opening ceremony of the Boao Forum for Asia 2018 (BFA) on April 10, President Xi Jinping described economic globalisation as an irreversible trend, and noted that China would continue on its course of opening-up. This is positive news for enterprise, as extended opening-up will bolster investor confidence globally, while leading to a wide range of new business opportunities.

Against the backdrop of the 40th anniversary of China’s reform and opening-up, President Xi announced steps would be taken to widen market access significantly, create a more attractive investment environment, strengthen protection of intellectual property rights (IPR) and expand imports.

The Government Work Report released earlier this year had touched on most of these measures, but the current trade environment has given them new significance. Measures for enhancing alignment with international economic and trading rules, along with increasing transparency were specified, being regarded as particularly important for China’s development at this stage.

Measures on China’s further opening up and business implications include:

1. Further opening up in the financial sector

The People’s Bank of China unveiled policy details as well as a timeline on 11 April, with policies focusing on expanding market access and lifting ownership restrictions. This series of deeper financial opening-up measures are beneficial to both China and the global financial industry, as it will create new opportunities for domestic and foreign players in the areas of market competition, channels, products and services, customer experience, and operations.

2. Further opening up in the auto sector

The market entry restrictions for the auto industry would be phased out over the next five years. Gradually lifting the market entry barriers for new energy vehicles, as well as commercial and passenger vehicles will help home-grown brands optimise their production capacity structure and ramp up investments in research & development and production operations, thereby improving their competitive edge in international markets.

3. Taking the initiative to expand imports

The reduction of auto and anti-cancer drug tariffs will allow foreign models to be introduced to the country at a lower price. This may bring pressure to Chinese domestic enterprises initially, but it also motivates the Chinese enterprises to enhance their capabilities and adjust to the competitiveness of the international market.

4. Creating a more attractive investment environment

It can be anticipated that in the future, China will create a more fair and stable tax and business environment for taxpayers by focusing on both “reducing tax burdens” and “facilitating tax compliance”. The evolving tax and business environment are crucial for enhancing a country’s soft competitive power.

5. Strengthening the protection of intellectual property rights

In addition to actions taken at the national level, enterprises need to strengthen the protection of their IPR, investing more in enhancing their awareness and ability to innovate, and continually attract and cultivate innovative talent. By doing so, together with the government, they could effectively push IPR progress to a higher level.

6. Benefitting from the Belt and Road Initiative (BRI)

Future BRI projects will also likely pay closer attention to effects on the environment and seek to minimise environmental impacts in order to achieve the goal of “shared benefits” for all. The BRI is also not just about Chinese outbound projects, but also concerns foreign investment into China.

Read full article

Double Tax Treaty – Brazil x Switzerland

Brazilian and Swiss governments signed a Double Tax Treaty (DTT) on 3 May 2018 that regulates the income tax treatment between both countries. The DTT includes provisions to facilitate international cross border investments and transactions such as dividends, royalties, interest and capital flows and is aligned with the Base Erosion and Profit Shifting (BEPS) actions, such as treaty abuse provisions, mutual agreement procedure as well as exchange of tax information.

The DTT as a next step will need to be ratified by both jurisdictions in accordance with their respective domestic law. On the Brazilian side, the DTT must be ratified by the National Congress and on the Swiss side, also the parliament will need to ratify the DTT. Only once ratified by both jurisdictions, the treaty can enter into force. At this stage, it cannot be predicted when exactly the DTT will enter into force though.

Switzerland is one of the biggest investors in the Brazilian market and the DTT demonstrates the high interest in the continuous development of the commercial relationship between the countries by providing investors with clear tax rules and the same time increase transparency.

It is important to highlight that Brazil and Switzerland already signed an Automatic Exchange of Information agreement, which entered into force on 1 January 2018, which will allow the countries to share financial information regarding enterprises and individuals even if the DTT is not in force yet. Switzerland already has an attractive double tax treaty network with Latin American jurisdictions and ratifying and putting into force the Swiss Brazilian DTT will enhance Switzerland’s position for Latin American investments.

In addition, in February 2018, the OECD and Brazil also launched a joint project to examine the similarities and gaps between the Brazilian and OECD approaches to valuing cross-border transactions between associated firms for tax purposes. The project will also assess the potential for Brazil to move closer to the OECD’s transfer pricing rules, which are a critical benchmark for OECD member countries and followed by countries around the world. The development of further DTT’s as well as the intention to close the gap with the OECD also demonstrates that Brazil is seeking to align its practice to the global standards and facilitate investments.

Contact Us

Tiago Feracioli
Manager
Tel. +41 58 792 21 75
tiago.feracioli@ch.pwc.com

Matthias Marbach
Director
Tel. +41 58 792 44 76
matthias.marbach@ch.pwc.com

Stefan Schmid
Partner
Tel. +41 58 792 44 82
stefan.schmid@ch.pwc.com

Federal Tax Authorities published circular No 37A

On 4 May 2018, the federal tax authorities have published a new circular regarding the tax treatment of participation instruments for employers (circular No 37A). The circular enters into force with immediate effect.

What is it about?

Whereas the circular No 37 mainly provides guidance on the definition and individual income tax treatment of participation instruments in national and international cases, the new circular No 37A focuses on the corporate tax impact for employers resulting from participation instruments, i.e. tax deductibility of corresponding expense.

Learn more about the circular No 37A

What does this mean for employers?

The cost in connection with employee participation programs are generally tax deductible for corporate tax purposes as long as this is adequately reflected in the books. The new circular provides various examples in this respect. However, the devil lies in the detail.

We recommend you to assess the potential impact of the new guidance on your plans and processes to avoid / mitigate any tax exposure. If you have any questions regarding the circular contact Remo Schmid.

Disclose 27, Focus piece 6: Audit 4.0, Part 2, Audit 4.0, Part 2, High-Performing Auditors

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 6 gives you an insight into the topic Audit 4.0, Part 2, High Performing Auditors:

In the wake of digital transformation there’s been a huge explosion in demand for cost-efficiency, greater security and transparency, and fact-based decision-making. This is forcing companies to realign their financial function, and revolutionising auditing – both of which are now expected to make a better-quality and more useful contribution. CFOs and auditors are morphing from backward-looking guardians of quality to data agents.

Read the full report here.

Contact

René Rausenberger
Partner, Head of Technology-driven Audit
PwC Switzerland
Tel.: +41 58 792 22 66
rene.rausenberger@ch.pwc.com