EU and the OECD considering TRACE / withholding tax simplification

On 30 January 2018, the European Commission held a public session to discuss the code of conduct issued by the Commission in late 2017 regarding increasing the efficiency of withholding tax (“WHT”) procedures. The code of conduct contains a list of measures for E.U. Member States to consider in terms of simplifying WHT procedures as regarding cross border income such as dividends, interest, and royalties. The code is a non-binding document which allows for voluntary commitment by E.U. Member States.

The measures considered includes, inter alia, (1) increased digitalization of WHT procedures, (2) provisions of refunds in a short period, and (3) relief at source. The tax relief at source suggestion includes the use of “authorized information agents and withholding agents” to facilitate the verification of entitlement to treaty relief, provision of pooled withholding tax rate information, and reporting of relevant information.

Such a tax relief at source solution resembles the OECD’s Treaty Relief and Compliance Enhancement (“TRACE”) project which started in 2009. TRACE envisages the use of Authorised Intermediaries to facilitate a more efficient and simpler application of treaty relief on cross border investments in a similar manner to the U.S. Qualified Intermediary regime. Although TRACE has not been implemented in any country as of yet, we understand that it may be reactivated soon especially given the work done at European Commission level in terms of the WHT topic.

Please refer to the following link for access to the European Commission Code of Conduct.

Contact

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

OECD Publishes Public Comments on Mandatory Disclosure Model

On 18 January 2018, the Organisation for Economic Co-operation and Development (“OECD”) published the public comments on the discussion draft on Mandatory Disclosure Rules for Addressing OECD Common Reporting Standard (“CRS”) avoidance arrangements and offshore structures (“Discussion Draft”). The OECD had published the Discussion Draft on 11 December 2017, requesting comments from interested parties and stakeholders by 15 January 2018. The Discussion Draft outlined a proposed model requiring mandatory disclosure rules, which ultimately intends to target promoters and service providers with a material involvement in the design, marketing or implementation of CRS avoidance arrangements and opaque offshore structures.

The public comments on the Discussion Draft came from numerous sources, including all of the Big 4 firm networks. In terms of input from Swiss sources, the Swiss Banking Association, Swiss Association of Asset Managers, Association of Swiss Private Banks, and the Swiss Insurance Association all provided comments to the OECD. The general feedback highlights the potential practical difficulties in the application of the model, mainly due to retrospective application of rules and definitions that are too broad at present for practical application. As a next step, the OECD will take these comments into account and present a report on the topic to the G7 Finance Ministers in mid-2018.

Please refer to the link for access to the public comments on the OECD’s Discussion Draft.

Contact

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

Swiss CRS Updates – January 2018

During December 2017, the Swiss Federal Tax Administration (“Swiss FTA”) and the Swiss State Secretariat for International Financial Matters (“SIF”) provided important updates regarding the Automatic Exchange of Information on financial accounts (“AEOI”) under the OECD’s Common Reporting Standard (“CRS”). Upon the completion of ongoing parliamentary work, the SIF updated the list of jurisdictions and territories with which Switzerland has agreed to exchange information under the CRS. In addition to containing Switzerland’s AEOI partner jurisdictions, the list also includes additional information, such as the date of entry into force of the various CRS agreements as well as specific distinctions between the different partner jurisdictions. The updated list distinguishes between states that:

  • have not yet submitted their partner state notifications. The AEOI will thus be activated at a later date;
  • have declared themselves to be “permanent non-reciprocal jurisdictions”, i.e. they will supply account information to the partner states on a permanent basis but will not receive such data;
  • do not meet the requirements of the global AEOI standard at present and have postponed the introduction of the AEOI.

Please refer to the following links for the updated list of Switzerland’s AEOI partner jurisdictions in German / English.

In addition to the above-mentioned updates, the “Questions and Answers to CRS” on the Swiss FTA website and the OECD “FAQs” were also updated in December 2017.

Contact

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

CRS Updates – December 2017

OECD Seeking Public Comments Regarding Mandatory Disclosure Model

On 11 December 2017, the Organisation for Economic Co-operation and Development (“OECD”) published a press release containing a mandatory disclosure consultation document which is open for comments from interested parties and stakeholders until 15 January 2018. Through the consultation document, the OECD is seeking input for a model requiring mandatory disclosure rules, and which ultimately intends to target promoters and service providers with a material involvement in the design, marketing or implementation of Common Reporting Standard (“CRS”) avoidance arrangements and offshore structures.

While tax transparency has significantly improved over the past decade, issues remain in regards to the widespread use of offshore structures to circumvent CRS reporting requirements, as highlighted by the release of both the “Panama” and “Paradise” papers. With the OECD’s proposed model, the rules would require intermediaries to disclose information on potential schemes to their local tax authority. Said information would then be made available to other tax authorities in accordance with the applicable information exchange agreement.

The OECD is now seeking public input from interested parties and stakeholders via the consultation document. The deadline for comments is 15 January 2018.

Please refer to the link for access to the OECD’s press release and consultation document.

Swiss CRS Update: Additional Agreements Approved by Chambers of Parliament

On 6 December 2017, the Swiss Parliament announced their approval of 41 additional partner jurisdictions starting on 1 January 2018 for the Automatic Exchange of Information (“AEOI”) under the CRS. After an initial rejection from one chamber of parliament, Saudi Arabia and New Zealand were also approved and are part of the 41 new partner jurisdictions. In addition to this announcement, the Swiss Parliament outlined strict and detailed requirement criteria for existing and potential Swiss partner jurisdictions. As part of this, the Swiss Federal Council will evaluate whether Swiss partner jurisdictions are compliant with the OECD CRS before Switzerland will exchange any information or data with them. The results of said testing will be communicated to the chambers of parliament.

Please refer to the link for additional details regarding the Swiss Parliament and Federal Council’s AEOI-related decisions.

Additionally, please refer to the link for a list of Switzerland’s current AEOI partner jurisdictions.

Contact

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

Swiss Banking Association Publishes Circular Regarding W-8 Form Translations, the FFI Agreement Extension, and FATCA Qualification Board Evaluations

On 5 October 2017, the Swiss Banking Association (“SBA”) published Circular 7939, which covers the translations of IRS Forms W-8BEN and W-8BEN-E, the extension of the FFI Agreement renewal, and several evaluations made by the FATCA Qualification Board.

With this Circular, the SBA has provided Swiss Financial Institutions (“FIs”) with German, French, and Italian translations of the current and updated IRS Forms W-8BEN and W-8BEN-E. FIs may use the translated IRS Forms effective immediately. Additionally, the Circular includes a reminder that the new IRS Form W-8IMY must be implemented and used by 1 January 2018, while all other new W-8 Forms must be implemented and used by 1 February 2018. Please refer to the link to find the German, French, and Italian translations of the IRS Forms W-8BEN and W-8BEN-E in PDF format under Circular 7939.

Circular 7939 also discusses the IRS-granted extension for FIs that have not renewed their FFI Agreement. On 1 August 2017, the IRS published a FAQ clarifying that FIs have been granted an extension until 24 October 2017 to renew their FFI Agreement. Please refer to the link for access to the FAQ published by the IRS (the FFI Agreement renewal topic is covered in question 12 under “Registrations Update”).

Lastly, Circular 7939 discusses various evaluations made by the FATCA Qualification Board, including evaluations made regarding FATCA self-certifications and plausibilization, deaths of US person(s) controlling a passive NFFE, and identifying entitled third party beneficiaries of cash value and annuity insurance contracts. Please refer to the following links for additional details to the evaluations made by the FATCA Qualification Board:

Contact

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

Swiss Banking Association Publishes New Circulars Regarding W-8 Forms and Section 871(m)

Swiss Banking Association Publishes Factsheet for Limitation on Benefits Provisions on the Updated IRS Form W-8BEN-E

On 22 September 2017, the Swiss Banking Association (“SBA”) published a factsheet for the limitation on benefits (“LOB”) provisions included on the updated IRS Form W-8BEN-E according to the revised Qualified Intermediary Agreement (in force as of 1 January 2017). The factsheet will provide Financial Institutions (“FIs”) with generic and simplified definitions of the various LOB categories listed on the W-8BEN-E and Treaty Statements. While the factsheet does not constitute tax advice, FIs may use it as a guidance for their entity clients when they complete the LOB section of the W-8BEN-E or Treaty Statement. Furthermore, the factsheet covers the additional categories of the Swiss-U.S. income tax treaty.

The factsheet is available in German, French, Italian, and English. It can be found on the SBA’s website published as Circular 7936. Please refer to the link for the factsheet in PDF format.

Swiss Banking Association Publishes Circular Regarding the Classification of Dividend-Equivalent Payments According to Section 871(m)

On 26 September 2017, the Swiss Banking Association (“SBA”) published Circular 7937 in order to provide clarification regarding the classification of dividend-equivalent payments relating to Section 871(m). Under the Qualified Intermediary Agreement, FIs must withhold tax on US-source income to non-US recipients (withholding rates vary depending on which Double Tax Treaty rate applies), and this includes certain dividend-equivalent payments under Section 871(m).

The SBA had several discussions with the State Secretariat for International Financial Matters and the Swiss Federal Tax Administration (“FTA”), which resulted with the FTA releasing a ruling describing the classification of payments within the scope of 871(m). Based on this, the Circular covers the classification of dividend-equivalent payments according to Section 871(m) as applicable under the Switzerland-US Double Tax Treaty. Additionally, the Circular discusses how withholding on US-source income applies to this classification of dividend-equivalent payments.

Please refer to the link for access to the SBA’s Circular 7937.

Contact

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