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

Blockchain Taskforce makes recommendations to strengthen Switzerland as an international blockchain hub

At this year’s Blockchain Summit on 26 April 2018 in the heart of the well-known Crypto Valley in Zug, Federal Councilor Johann Schneider-Ammann received a white paper on the topic “Strengthening Switzerland as a Blockchain Hub” and a position paper on the legal classification of ICOs. The publications were written by the Blockchain Taskforce, a group of around 50 personalities from politics, business and science. The documents contain a series of recommendations on how laws and framework conditions in the Blockchain and ICO field should be adapted in order to strengthen the Swiss Blockchain/ICO location in the best possible way.

The Blockchain Task Force concludes, among other things, that

  • for practical and economical reasons, the possibility of digital transfer of ownership of tokens should already be possible to date applying a broad interpretation of the existing law. Alternatively, a change in the law is proposed;
  • the current Anti-Money Laundering Act does not need to be amended. It is sufficient to consistently apply the existing law to the new technology;
  •  a so-called “sandbox” (an experimental space with lower regulatory requirements) for blockchain start-up companies should be created (similar to the existing Fintech sandbox);
  •  it is extremely important that Blockchain companies can open a bank account without further ado. This is currently only difficult to achieve;
  • new standards (so-called “best practice rules”) for the issuance of tokens and transactions on the blockchain are to be introduced. FINMA should define when tokens should be regarded as securities within the meaning of the Financial Market Infrastructure Act or as deposits within the meaning of the Swiss Banking Act;
  • general criteria for the term “token” should be established. With a so-called “Token Map” a group of criteria and terms shall be proposed, which can be used in connection with the design and evaluation of blockchain-based projects, which issue their own tokens.

The Blockchain Task Force also announced that it would continue its activities but change its name to Swiss Blockchain Institute. An ICO will be launched to finance future activities of the institute.

Further information at:

Starkung des Blockchain-Standorts Schweiz

Positionspapier zur rechtlichen Einordnung von ICOs

Contact Us

Guenther Dobrauz
Partner, Leader of PwC Legal Switzerland
Office: +41 58 792 14 97
Email: guenther.dobrauz@pwc.com

Tina Balzli
Director, PwC Legal Switzerland
office: +41 58 792 15 54
Email: tina.balzli@ch.pwc.com

Mark Schrackmann
Assistant Manager, PwC Legal Switzerland
Office: +41 58 792 25 60
Email: mark.schrackmann@ch.pwc.com

Orkan Sahin
Assistant Manager, PwC Legal Switzerland
Office: +41 58 792 19 94
Email: orkan.sahin@ch.pwc.com

Attention to new sanctions related to Russia

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctions Russian oligarchs, officials and entities.

OFAC has designated seven Russian oligarchs and 12 companies they own or control, 17 senior Russian government officials and a state-owned Russian weapons trading company and its subsidiary, a Russian bank.

What does this regulation mean for U.S. persons?

U.S. persons are generally prohibited from dealings with designated individuals and entities subject to U.S. jurisdiction. This prohibition also applies to employees and board members of designated entities if they are subject to U.S. jurisdiction.

OFAC has issued General License 12, which authorises a time-limited maintenance or wind-down of operations, contracts or other agreements (e.g. authorising the transfer of shares) that were in effect prior to 6 April 2018. Furthermore, General License 13 authorises U.S. persons with shares in a designated entity or blocked entity (50% OFAC rule) to divest or transfer these shares to a non-U.S. person, or to facilitate the transfer by a non-U.S. person to another non-U.S. person of debt, equity or other holdings in the blocked entities listed in this General License.

What does this regulation mean for companies owned or controlled by designated individuals or entities?

Property and interests in property of entities of which 50% or more is directly or indirectly owned by one or more designated individual(s) or entity(ies) are considered as blocked regardless of whether such entities appear on the OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List).

Such participations could lead to significant difficulties not only with U.S. persons and entities, but also with non-U.S. persons (if applicable under the specific regulation) and persons who are risk-averse in the fairly long-term. Furthermore, this scenario could also result in reputational damage.

Will foreign persons (non-U.S. persons) be subject to sanctions for doing business with designated individuals or entities?

Foreign persons (non-U.S. persons) could also be subject to sanctions for doing business with designated individuals, entities and blocked entities (50% OFAC rule) for knowingly facilitating significant transactions, including deceptive or structured transactions, for or on behalf of any person subject to U.S. sanctions with respect to the Russian Federation or their children, spouses, parents, or siblings.

Broad factors for “significant transaction” and “significant financial transaction” include the size, number and frequency of the transaction(s), the nature of the transaction(s) or the level of awareness of management and whether the transaction(s) are part of a pattern of conduct.

You can count on us

Would you like to ensure compliance with sanctions regulations, review or expand your existing sanctions compliance system, or do you have any specific questions about sanctions regulations? We will be happy to actively support you as your partner:

  • We can help you carry out health checks and ensure compliance with your obligations in accordance with the specific OFAC regulation on designated individuals, entities or blocked entities.
  • Furthermore, we can help you carry out health checks and ensure compliance with your obligations in accordance with local (e.g. SECO, UNO) and EU sanctions regulations in general, including a comprehensive report with clear guidance on the next steps you need to take.
  • We can provide you with a memorandum on specific questions with regard to your business model or project.
  • We can offer support with the practical implementation of an adequate compliance management system.
  • We can assist you with the development, improvement and implementation of your organisation, policies, guidelines, procedures, training and controls.

Contact us

Susanne Hofmann
Director
Leader Legal Compliance, PwC Switzerland
Direct: +41 58 792 17 12
susanne.hofmann@ch.pwc.com

Simeon Probst
Partner
Leader Customs & Trade, PwC Switzerland
Direct: +41 58 792 53 51
simeon.probst@ch.pwc.com

Gianfranco Mautone
Partner
Leader Forensic Services and Financial Crime, PwC Switzerland
Direct: +41 58 792 17 60
gianfranco.mautone@ch.pwc.com

Désirée Bysäth (Author)
Assistant Manager
Legal Compliance, PwC Switzerland
Direct: +41 58 792 40 03
desiree.bysaeth@ch.pwc.com

Swiss bond trading report 2018

Regulation of bond trading: Setting the scene

The following chapter will provide an overview of the key regulatory requirements for trading professionally in securities in the form of a bond in Switzerland.

A bond in the form of a «security» in the sense of Art. 2 para. 1 lit. b FinfraG/FMIA is offered at uniform conditions to multiple parties. Securities are, in other words, standardised, certificated and uncertificated financial instruments suitable for mass trading. They are thus either offered publicly in a similar structure and denomination or placed with more than 20 clients, unless they are being created specifically for individual counterparties.

A security in the form of a bond can trigger multiple legal consequences when being traded. These consequences are:

  • Persons professionally trading in securities will potentially have to apply for a licence as a securities dealer (the Swiss equivalent of an investment firm or broker/dealer).
  • Facilities allowing for the multilateral trading of securities require a licence as a stock exchange or multilateral trading facility (MTF).
  • Facilities allowing for the bilateral trading of securities must be operated by a duly licensed operator (the Swiss bilateral version of an OTF,which replaces the Systematic Internaliser in the EU).
  • The public offering of securities requires a prospectus. The listing of securities on a trading venue (stock exchange and MTF) also requires the filing of a listing application and the creation of an accompanying prospectus.

Read the full report

Contact Us

Martin Liebi
Director, PwC Legal Switzerland
Tel: +41 58 792 28 86
martin.liebi@ch.pwc.com

Blockchain: Key challenges to get your solution GDPR compliant

What is the General Data Protection Regulation (GDPR) about?

The General Data Protection Regulation (GDPR) (EU) 2016/679 harmonises personal data protection law on the territory of the European Union (EU). It stipulates rules on data processing and on the transfer of personal data in and outside the EU. Coming into effect on 25 May 2018, it will replace the 1995 Data Protection Directive (Directive 95/46/EC). Non-compliance with the GDPR may lead under some circumstances to severe fines of up to 4% of worldwide annual turnover.

What are the key challenges the GDPR triggers for blockchain?

Depending on the blockchain-based activity the GDPR raises considerable legal concerns. Among the most relevant ones relate to the processing principles of data minimisation and storage limitation. Some key challenges relate specifically to blockchain features, such as:

    • Immutability of transactions
    • Replication
    • Encryption
    • Data controllers and data processors

Read the full article

 

Contacts

Dr. Guenther Dobrauz
Leader|PwC Legal Switzerland, Zurich
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Susanne Hofmann
Director|PwC Legal Switzerland, Zurich
+ 41 58 792 17 12
susanne.hofmann@ch.pwc.com

Dr. Idir Laurent Khiar
Manager|PwC Legal Switzerland, Zurich
+41 58 792 17 51
idir.laurent.khiar@ch.pwc.com

Orkan Sahin
Assistant Manager|PwC Legal Switzerland, Zurich
+41 58 792 19 94
orkan.sahin@ch.pwc.com

Restrictions related to the sale, distribution, or marketing of CFD and Binary Options to EU-domiciled retail investors also for Swiss-based financial market participants coming soon

The European regulator ESMA has announced that soon restrictions related to the sale, distribution, or marketing of CFD and Binary Options to retail investors domiciled in the EU will become effective. The prohibitions will also apply  to Swiss based financial market participants engaging in such activities purely on a cross-border basis. The restrictions will become effective one month in case of Binary Options respectively two months in case of CFD after their publication in the Official Journal and will last for three months, but might be prolonged thereafter. Affected market participants have thus some limited time to prepare.

Restrictions applicable to contracts for difference (CFD)

Affected by the restrictions are contracts for differences (CFD), meaning any derivative other than an option, future, swap, or forward rate agreement, the purpose of which is to give the holder a short or long exposure to fluctuations in the price, level, or value of the underlying that must be settled in cash or may be settled in cash at the option of one party other than by reason of default or another termination event. Warrants and turbo certificates are not affected.

The restrictions will consist of the following measures:

  • Leverage limits: leverage limits will apply on the opening of CFD positions. The following initial margin requirements will apply:
    • 3,33% if the underlying is composed of any two of the following currencies: USD, EUR, JPY, GBP, CAD, or CHF.
    • 5% when the underlying is one of the key mentioned international indices, a currency pair of at least one of the currencies mentioned above, or gold.
    • 10% when the underlying is another commodity or another equity index.
    • 50% if the underlying is a cryptocurrency.
    • 20% if the underlying is a stock not listed above.
  • Margin close-out rules per account: margin close-out rules per account and not per position apply if the sum of the funds in the CFD trading account and the unrealised net profits of all CFD positions connected to that account fall to less than half of all initial margins of these CFD-positions. Margin close-out rules of 50% per position are still applicable.
  • Negative balance protection on a per account basis: negative balance protection on a per account basis limits a retail investor’s aggregate liability for all CFDs connected to a CFD trading account with a CFD provider to the funds in the CFD trading account.
  • Restrictions of incentives of CFD trading: no monetary benefits can be provided to retail investors other than the proof of a CFD. These restrictions will apply to all existing and prospective clients.
  • Risk warning: appropriate risk warnings must be included in all communication and publications containing the percentage of retail investors that lost money over the preceding twelve months.

Restrictions applicable to Binary Options

Restrictions will also apply to Binary Options, meaning any cash settled derivative in which the payment at close-out or expiry of a predetermined fixed monetary amount or zero depends on whether one or more specified events in relation to the underlying occur at, or prior to the derivative’s expiry. There will be a three-month prohibition on the marketing, distribution, or sale of Binary Options to retail investors domiciled in the EU.

Contact Us

Martin Liebi
Director, PwC Legal Switzerland
Tel: +41 58 792 28 86
martin.liebi@ch.pwc.com

 

A primer on the regulation of the trading in cryptocurrencies and the asset management related to cryptocurrencies in Switzerland

Cryptocurrencies, which are based on distributed ledger technology, have gained importance in financial services in the recent past. This primer seeks to give an overview of the key obligations under Swiss regulatory laws related to:

  • Trading in cryptocurrencies
  •  Initial coin offerings (ICOs)
  • Entities trading in cryptocurrencies
  • Asset management related to cryptocurrencies
  • Anti-money laundering obligations

Trading in cryptocurrencies is increasingly subject to regulation on multiple levels, namely:

  • Trading
  •  ICOs
  • Entities trading in cryptocurrencies
  • Asset management related to cryptocurrencies

Payment tokens, exchange of cryptocurrencies into fiat money, custody wallets, banks, securities dealers and asset managers are generally subject to anti-money laundering requirements, such as registration, supervision and identification of counterparty requirements. Anti-money laundering obligations are the basic regulatory requirements that apply to most entities trading in cryptocurrency markets. Depending on their additional activities, they might require a licence as a bank, securities dealer (Swiss version of an investment firm), bilateral organised trading facility (OTF) or asset manager, or a combination of these licences. Switzerland is also planning to introduce a new licence category in the near future, called fintech-bank. Licences are required in the cases listed below.

  • Accepting client deposits, in particular when issuing OTC derivatives which are not securities, generally requires a banking licence. The banking licence is the highest regulated category of financial market participation. Cryptocurrencies and their associated private keys may be deposits under the Swiss Banking Act.
  • Trading in cryptocurrencies which are securities, either on behalf of clients or on one’s own account (if certain turnover thresholds are being exceeded), generally requires a securities dealer licence. The licensing requirements also apply to the entity’s public issuing of derivatives. Bilateral systematic internalisation of cryptocurrencies and related derivatives or financial instruments is subject to additional regulatory requirements under the Swiss Financial Market Infrastructure Act (FMIA).
  • Asset management activities related to Swiss and foreign collective investment schemes regarding cryptocurrencies and related financial instruments generally require a licence. The distribution of collective investment schemes and the representation of foreign collective investment schemes also require a licence. Individual portfolio management and advisory activities are, under the current regulatory regime, not subject to a licensing requirement (except for AML registration). However, this is likely to change under the new regulatory regime planned to enter into force soon.

Trading in cryptocurrencies that are derivatives may be subject to multiple obligations depending upon the status of the counterparties involved, such as reporting and risk mitigation (trade confirmation, portfolio reconciliation, portfolio compression, dispute resolution and valuation, as well as initial and variation margins).

Read Full Report

Contact Us

Martin Liebi
Director, PwC Legal Switzerland
Tel: +41 58 792 28 86
martin.liebi@ch.pwc.com

The new European rules for securitisations

The EU has enacted a new set of regulations applicable to securitisations, and a more specific framework for simple, transparent, and standardised securitisations (“the regulation”).

A securitisation is any transaction or scheme that tranches the credit risk associated with an exposure or pool of exposures. Payments in the transaction are dependent upon the performance of the exposure or of the pool of exposures and the subordination of tranches determines the distribution of losses. The regulation is the next building block in the ambitious capital market union (CMU) project and is directly applicable without transposition into national legislation of the EU member states beginning as of 1 January 2019.

The new EU rules on securitisations will affect originators, sponsors, original lenders, special purpose vehicles, institutional investors and anyone selling securitisations to retail investors without differentiation whether domiciled in the EU or in a third country such as Switzerland. There are general rules applicable to all securitisations. Other rules are only applicable to certain categories of securitisations called simple, transparent and standardised securitisations, and the sub-category asset backed commercial paper securitisations. Non-compliance with the rules can be sanctioned with fines of up to EUR 5m. or 10% of the total annual net turnover.

Download report

Contacts

Martin Liebi
PwC | Dr.iur., LL.M., Attorney-at-law
Legal FS Regulatory and Compliance Services | Head Capital Markets
Office: +41 58 792 2886 | Mobile: +41 76 341 6543
Email: martin.liebi@ch.pwc.com

Antonios Koumbarakis
PwC | Legal FS Regulatory and Compliance Services
Office: +41 58 792 4523 | Mobile: +41 79 267 8489
Email: antonios.koumbarakis@ch.pwc.com

FATCA Certification: Extension of Deadline and Draft Certification Texts Published

On 16 March 2018, the Internal Revenue Service (“IRS”) published the FATCA Responsible Officer certification texts on its website (in draft form). Additionally, the IRS extended the deadline for the FATCA Responsible Officer certification. Please refer to the following link for access to the draft FATCA certification texts as well as the notice regarding the deadline extension.

The IRS also announced that the IRS’s FATCA Certification Portal (“IRS Portal”) will not be available until July 2018 (at the earliest). Based on the newly provided information, we understand that the IRS will grant FATCA Responsible Officers an extension of at least three months (as per the activation date of the IRS Portal) for the FATCA Certification. This means that the FATCA Certification deadline will be extended from 1 July 2018 to 1 October 2018 (assuming the IRS Portal is activated on 1 July 2018).

Furthermore, the IRS published different draft certifications texts for the various Financial Institution categories (e.g., Reporting Model II FFI, Local FFI, etc.). An initial review of the draft certification texts indicates no unexpected surprises in terms of the content or scope of the FATCA Certification.

As we continue to analyze the certification texts, we will actively post any new and relevant information. In the meantime, please feel free to contact us in case of any questions.

Contact

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

Melanie Taosuwan
+41 58 792 4249
melanie.taosuwan@ch.pwc.com