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

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

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

UPDATE: FinSA and FinIA: Commission for economy and taxes concluded its debation

The Commission for economy and taxes (WAK-S) concluded the debation relating to the Financial Services Act (FinSA) and the Financial Institutions Act (FinIA). This information has been released in the press today.

Thereby the WAK-S endorsed almost all proposals made by the National Council (Nationalrat). In particular, WAK-S has unanimously approved the possibility for the early entry into force of the Fintech provisions, and has also largely agreed with the National Council on the material provisions relating to Fintech. Thus, there is a good chance that the Banking Act will create a new license category for enterprises that accept public deposits of up to 100 million francs without investing or paying interest. For the new category of companies, simplified approval and operating requirements in the areas of accounting, auditing and deposit securities are to be applied.

However, the following outlines the most significant amendments and changes made to the resolution of the National Council:

  • As opposed to the proposal made by the National Council, WAK-S resolved that the threshold for the obligation to publish a prospectus for public offers of securities shall be increase from 2.5 million francs to 8 million francs.
  • Regarding the „door-to-door selling” (Haustürgeschäft) which is stated in the Swiss Code of obligations, the WAK-S endorsed by the majority to the proposal made by the National Council that the door-to-door selling of banking and financial services shall be exempted. However, the exception shall only be applicable to offers which have been made to existent clients of the financial institution or the bank.
  • The grand-fathering clause which is stipulated in the FinIA shall not be cancelled according to the WAK-S, as opposed to the proposal made by the National Council.
  • Regarding the financial market supervisory act, as opposed to the proposal made by the National Council, the WAK-S resolved that also persons and entities holding a qualified or substantial participation in a supervised institute shall provide the supervisory organization with all information and documents necessary for the performance of its duties.

The Council of States will now take over and could already be debating the topics in its spring 2018 session. Subsequently, the Commission for economy and taxes (WAK-N) as well as the National Council will deliberate, so that the bill has to pass the final hurdle before becoming enacted.

The document regarding comparison of the resolutions of the WAK-S is now available under the following Link.

Contact Us

Dr. Guenther 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

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

Claudia Thalmann
Assistant Manager
Legal FS Regulatory & Compliance Services
+41 58 792 16 69
claudia.thalmann@ch.pwc.com

Identifying and managing step-in risk

In October 2017 the Basel Committee on Banking Supervision (BCBS) issued guidelines on the identification and mitigation of step-in risk.

The guidelines are designed to mitigate potential spill-over effects from the shadow banking system to banks, and will have to be implemented by 2020 at the latest.

Implementing the requirements to comply with the BCBS step-in risk guidelines is complex, and banks with global operations will have to launch their implementation projects well ahead of the final implementation date.

PwC is available to discuss the guidelines with you and walk you through our approach, which addresses the requirements of step-in risk through potential amendments to terms and conditions (T&Cs) and the suitability of products for investors. Additionally, you will need to make changes to your risk governance and policies so that step-in risk can be reduced ahead of the go live date.

Find out more

Your PwC contacts

Andrin Bernet
Partner
andrin.bernet@ch.pwc.com
+41 58 792 24 44

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

Yousuf Khan
Director
yousuf.khan@ch.pwc.com
+41 58 792 15 62

Vandana Shah
Senior Manager
shah.vandana@ch.pwc.com
+41 58 792 20 14

More appealing the regime of taxation of the Italian source dividends received by companies resident in Liechtenstein.

This is one of the implications arising from the recent inclusion of the Principality in the so called Italian “White List”.

The regime of taxation of the dividends paid by the Italian companies to companies resident in  Liechtenstein has become more appealing as a consequence of the recent inclusion of the Country in the Italian so called White List.

As a matter of fact, a preferential WHT (at rate of 1,20 per cent instead of 26 per cent) could be applied to the above-mentioned Italian source dividends, provided that some conditions are met.

a) Background.

(i) The Decree 9 August 2016 has significantly extended the number of countries included in the so-called Italian “White-list” i.e. a list of countries in which agreements allowing information exchange are in force.

(ii) In general terms, from a financial perspective, the inclusion in the White list has relevant consequences both on “incoming financial income”, i.e. paid by subjects resident in a white-list country, and on “outgoing financial income”, i.e. received by subjects resident in those countries, thus making it more profitable for them to invest in domestic financial activities.

In particular, by this article we will focus on the consequences on the tax regime of the Italian source dividends paid to the companies resident in the Principality of the Liechtenstein arising from the inclusion of the same Country in the Italian White List.

b) The preferential withholding tax.

(i)  In general terms, the dividends paid by Italian entities to non-resident entities are subject to the Italian withholding tax at rate of 26 per cent.

The above-mentioned WHT can be mitigated according to the Double Tax Treaty in force between Italy and the Country of the recipient[1].

(ii)   In addition, a reduced 1,20 per cent[2]  WHT applies on dividends paid to:

  • entities which are subject to a corporate income tax in an EU State Member or EEA and
  • belong to the White List.

In particular, the WHT at reduced rate of 1,20 per cent refers to the dividends accrued starting from FY 2017 and aid from FY 2018 onwards (previously a reduced 1,375 per cent WHT was applicable on dividends paid starting from FY 2008).

(iii) At this regard, please consider that, in light of the clarifications issued by the Italian Tax Authority, the tax  payer in order to benefit of the above-mentioned reduced withholding tax shall prove that[3]:

a) the dividends were paid after the year 2004;

b) the request of the refund was submitted within 48 months after each dividend payment;

c) the company receiving the Italian dividends is subject to corporation tax[4].

d) the company receiving the Italian dividends must not have recovered integrally (or claimed for the reimbursement) the withholding taxes suffered in Italy (by means of deduction from the tax due in the State of residence or by the refund of the tax credit) neither according to the internal law nor according to the provisions of the Double Tax Treatment.

e) the dividend distribution does not constitute an “abusive” transaction.

Furthermore, please consider that the Italian Tax Authority has clarified that the claimant company must held “non qualified” shareholdings according to the Directive 90/435/EEC of  July 23rd, 1990 (so called “Parent – Subsidiary” Directive)[5].

As a matter of fact, in the above-mentioned case, on the dividends paid by the resident subsidiaries to EU Parent companies is not applicable the withholding tax of 1,20%, but must be applied the “Parent – Subsidiary” Directive  which provides, on request, the full refund of the withholding tax.

c) The case of the Liechtenstein.

(i) In light of above, the receiving companies resident in  Liechtenstein could benefit of  WHT at rate  of 1,20 per cent  (instead of 26 per cent) on dividends paid by Italian companies since the above-mentioned Country (EEA member) has been now included in the Italian “White List”.

However, in order to benefit of the above-mentioned preferential tax regime, the receiving companies must be subject to a corporate income tax and also other above-mentioned conditions have to be met.

(ii) Otherwise, should the Withholding Agent (even if all above-mentioned conditions are met)  apply a WHT on such dividends at higher tax rate (eg 26 per cent) the companies resident in Liechtenstein could ask the Italian Tax Office for the refund of the difference between the applied WHT and 1,20%.

In case of any questions, please do not hesitate to contact us.

Contact

Martin Meyer
PwC Liechtenstein| Director
Office: +41 58 792 42 96
Mobile: +41 79 348 36 13
Email: martin.meyer@ch.pwc.com
PricewaterhouseCoopers GmbH
Austrasse 52 | Postfach | FL-9490 Vaduz

 

Author

Davide Settembre
PwC TLS Avvocati e Commercialisti | Senior Manager
Office: +39 02 91605608
Mobile: +39 347 1004237
Email: davide.settembre@it.pwc.com
TLS Associazione Professionale di Avvocati e Commercialisti
Via Monte Rosa, 91, 20149 Milano, Italy
www.pwc.com/it


[1] Please consider that there is no DTA in force between Italy and Liechtenstein.

[2] The Finance Bill for 2016 has provided a reduction of the corporate income tax from 27.5% to 24% with effect from 2017.

Following such reduction, starting from FY 2018 Italian dividends paid to non resident companies and entities which are subject to a corporate income tax in an EU State Member or EEA and belonging to the White List, will be subject to a WHT lower tax rate at 1.20% (instead of 1.375%)

[3] Please see the Circular Letter no. 26/E of 21 May 2009 and no. 32/E of July 8 2011.

[4] More in detail, the Italian Tax Authority has clarified that the foreign companies can invoke the more favourable regime when they are subject to taxation even if they concretely benefit of specific exemptions. Consequently the requirement has to be interpreted “as general liability to taxation” and it is satisfied even where the entity is generally/potentially subject-to-tax, but there is a specific exemption e.g. for the particular kind of income realized.

[5] More precisely, the claimant Company must held shareholdings different in respect of those held by the Companies (so called Parent Companies) which satisfy some subjective and objective conditions provided for by law and which have a minimum share in a company resident in another Member State (which meet the same conditions).

MIFID II requirements for direct electronic access (DEA)

Direct electronic access (“DEA”) enables a person to access a trading venue directly, using the trading code of an investment firm to do so, or directly placing an order with the Automated Order Routing (“AOR”) of the investment firm. This gives the client full control of the exact fraction of a second in which the order is placed and the lifetime of the order, as well as discretion as to which broker or trading venue the order is placed with.

Such discretion clashes with the objectives of MiFID II, which aims at increasing market transparency and oversight functions. Therefore, the regulation mandates the investment firm providing DEA to monitor the client closely.

Download full article

Contact Us

Dr. iur. Guenther Dobrauz
MBA | Partner, Leader PwC Legal Services Switzerland
Office: +41 58 792 14 97 | Mobile: +41 79 894 58 73
Email: guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager | PwC Legal Services Switzerland
Office: +41 58 792 10 87 | Mobile: +41 79 775 95 53
Email: michael.taschner@ch.pwc.com

Yari A. Iannelli
Assistant Manager | PwC Legal Services Switzerland
Office: +41 58 792 28 54 | Mobile: +41 79 742 39 04
Email: yari.iannelli@ch.pwc.com

Dr. iur. Alexandra G. Balmer
Consultant | PwC Legal Services Switzerland
Office: +41 58 792 14 24 | Mobile: +41 79 267 81 04
Email: alexandra.balmer@ch.pwc.com

MiFID II is live- What now?

Despite the launch of MiFID II early this year, there is still ongoing work to be completed and firms are expected to receive new information from the European Commission and the European Securities and Markets Authority (ESMA), even after the implementation deadline of 3 January 2018. Among other things, opinions for 700 pre-trade transparency waivers and for 110 commodity position limits have yet to be finalised by the regulators.

Therefore, firms should stay flexible to immediately implement new information by regulators and adapt and refine their compliance strategies to current regulatory updates regarding MiFID II.

The following key dates highlighted in a timeline shall give firms and their compliance specialists an overview over the current year and beyond.

View timeline

Contact Us

Dr. iur. Guenther Dobrauz
Partner |  Leader PwC Legal Services Switzerland
Office: +41 58 792 14 97 | Mobile: +41 79 894 58 73
Email: guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager | PwC Legal, FS Regulatory & Compliance Services
Office: +41 58 792 10 87 | Mobile: +41 79 775 95 53
Email: michael.taschner@ch.pwc.com

Orkan Sahin
Assistant Manager | PwC Legal, FS Regulatory & Compliance Services
Office: +41 58 792 19 94 | Mobile: +41 79 238 65 69
Email: orkan.sahin@ch.pwc.com

Gregory Columbres
Assistant Consultant | PwC Legal, FS Regulatory & Compliance Services
Office: +41 58 792 18 41 | Mobile: +41 79 417 88 38
Email: gregory.columbres@ch.pwc.com

The Legal Entity Identifier – Also Relevant to Switzerland

The Legal Entity Identifier (LEI) emerged in the wake of the Lehman Brothers bankruptcy. At the Los Cabos Summit in June 2012, the G20 members approved a system for the unique identification of financial market players (Global Legal Entity Identifier System, GLEIS) to make it easier for both the private sector and public authorities to manage and control risks in the financial market. This system allows financial institutions to identify companies that are active on the financial market by way of a globally unique identifier.

During its 4 December 2015 session, the Swiss Federal Council voted that Switzerland adopt the GLEIS. It is hoped that this internationally standardised identification number for financial market participants will improve the quality of financial data and facilitate the assessment of systemic risks.

The focus of this paper lies on following topics:
  • How did the LEI come about?
  • What is an LEI?
  • Who needs an LEI?
  • Is an LEI the same for all asset classes?
  • How do I obtain an LEI?
  • What does the LEI mean for you?

Find out more

Stefan Wüest, Patrick Frigo and Erol Baruh will be happy to answer all your questions regarding LEIs.

Your PwC contacts

Stefan Wüest
PwC | Assurance Director
stefan.wueest@ch.pwc.com
+41 58 792 59 51

Patrick Frigo
PwC | Assurance Senior Manager
patrick.frigo@ch.pwc.com
+41 58 792 22 76

Erol Baruh
PwC | Assurance Senior Manager
erol.baruh@ch.pwc.com
+41 58 792 91 62