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

How much VAT will you pay for 1 franc of turnover in Switzerland?

Be it a necessary evil or smart compliance, VAT is a key topic – and now also concerns companies without a business location in Switzerland, from their very first franc of turnover in Switzerland.

You operate a shuttle company headquartered abroad and drive passengers to a Swiss airport. Or you are a kitchen manufacturer in the EU and equip houses in Switzerland with the latest designs. Or you are responsible for catering at an event on the Swiss side of the border. These examples have one thing in common: since 1 January 2018 all these companies have been subject to the partially revised Swiss Federal Act on Value Added Tax (VAT Act) – with far-reaching consequences.

New VAT provisions for all companies without a business location in Switzerland

If your company does not have a business location in Switzerland, the revised VAT Act introduces changes to the VAT registration obligation. Your company may be subject to Swiss VAT even if it is not established in Switzerland. The key question is whether your services have a connection to Switzerland. In principle, this is the case if your company generates turnover in Switzerland. This means that Switzerland represents a place of supply for VAT – which you will have to pay.

From the very first franc

Your tax liability in Switzerland is not determined by your turnover in Switzerland, but by your global turnover. If you generate less than CHF 100,000 from your services in Switzerland, but at least CHF 100,000 internationally, from 2018 onwards you are subject to VAT in Switzerland from the very first franc of turnover.

Low-value consignments remain exempt from tax on importation. However, under the new VAT legislation, (online) retailers that generate over CHF 100,000 of turnover per year in Switzerland through the supply of goods will be liable for VAT from 1 January 2019 onwards. In other words, you must charge Swiss VAT on services of this type.

From now on: proceed step by step

You no doubt wish to continue your business operations in Switzerland. To do so, you need an intelligent solution that avoids excessive costs and tedious complexity. We recommend proceeding as follows – if possible very soon, because the revised VAT Act has been in force since the beginning of the year.

  1. Register for Swiss VAT to receive your Swiss VAT number.
  2. Appoint a reliable fiscal representative to deal with the Swiss tax authorities on your behalf.
  3. Register for the electronic filing of quarterly Swiss VAT declarations.
  4. Submit the required quarterly VAT declarations.
  5. Keep an overview of all your correspondence with the tax authorities – including your replies.

Clever solution with Smart VAT

We have developed an online solution that is both simple and fast, and exclusively designed for businesses like yours: Smart VAT. This platform offers a number of advantages at the same time: Your VAT registration only takes a few moments. You can then continue your business activities in Switzerland without any interruptions – and with peace of mind, because you are acting fully in compliance with the law. And last but not least, Smart VAT is as simple and user friendly as online banking. And remember: registration for Smart VAT is free of charge. You simply pay a minimum annual fee for fiscal representation.

Find out more about Smart VAT here.

Contact

Julia Sailer
Director, VAT compliance services leader
+41 58 792 44 57
julia.sailer@ch.pwc.com

EMEA PE Webcast Series – Episode Four – VAT consequences of a corporate tax permanent establishment

Tuesday, 17 April 2018, 3.00 – 3.45 pm CET

After a short break, we are pleased to inform you that we will resume the PE Webcast Series, with Episode 4 – VAT consequences of a corporate tax permanent establishment.

In this webcast specialists from our international tax and VAT practice will compare the objectives and concepts of a corporate tax permanent establishment with a VAT fixed establishment (FE).

We will walk through practical examples to demonstrate the interaction of these rules, outlining the VAT consequences of creating a corporate tax PE, as well as the corporate tax position if you have a VAT FE.  As part of the discussion we will highlight trends in the application of PE and FE rules by tax authorities, leading in some cases to a blurring of the concepts.

You will have the chance to raise questions directly to our specialists.

Speakers for episode four will include:

  • Monica Cohen-Dumani – Partner, International Tax Services, EMEA ITS Leader – PwC Switzerland
  • Ine Lejeune – Partner Tax Policy, Dispute Resolution & Litigation – Law Square
  • Herman van Kesteren – Partner Indirect Taxes – PwC Netherlands

Registration Link

Complete the required registration fields and select “Submit”.
Once you have registered, you will receive the WebEx access details. The WebEx will be recorded and you will receive a link to the recording via e-mail after the event using the same details. There will be time for questions and answers with your speakers during the WebEx. Questions can also be sent in advance of the
WebEx session to the following email address: grasiele.neves@ch.pwc.com

We do hope that you will join us online!

Best regards,
Monica Cohen-Dumani

Contact

Monica Cohen-Dumani
Partner, EMEA ITS Central Cluster Leader
+41 58 792 97 18
monica.cohen.dumani@ch.pwc.com

Grasiele Teixeira Neves
International tax services
+41 58 792 98 25
grasiele.neves@ch.pwc.com

Update: Repatriation Tax (Notice 2018-26)

On April 2, 2018, the Department of the Treasury and the IRS released their third notice on the Toll Tax also known as the Repatriation Tax (Notice 2018-26)

Some of the key guidance provided in this latest notice which affect US individuals living abroad are:

  • Extension of time to pay the first installment of the Toll Tax for US individuals living abroad until June 15, 2018, the same date as the automatically-extended personal tax return deadline for these individuals.
  • Clarification on the allowable deductions for US individuals subject to the Toll Tax, who wish to make an election to be taxed similar to a US domestic corporation (i.e. §962 election)
  • US partners holding less than 5% in a partnership structure with investments in US domestic corporations may not be subject to the Toll Tax
  • If a foreign corporation filed an election to be treated as a tax-transparent entity (i.e. check-the-box election) after November 2, 2017, the Toll Tax may still be attributed to its US individual shareholders for the 2017 tax year.

From a practical perspective, US individuals (US national, US green card holder, US tax resident) residing abroad who are investors in a structure holding directly and indirectly, 10% ownership in a US domestic corporation should carefully review their toll tax exposure before June 15, 2018.

For more information, a complete copy of the notice can be found in the following link: https://www.irs.gov/pub/irs-drop/n-18-26.pdf

Contact Us

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

European Commission proposes new rules on the taxation of the digital economy

On 21 March 2018, the European Commission proposed new rules to ensure that digital business activities are taxed in a fair and growth-friendly way in the EU.

Background

While digital businesses have evolved rapidly in the recent past, the current tax rules do not fully fit the modern, increasingly digital economy, resulting often in a misalignment between the place where the profits are taxed and the place where value is created. In order to address the tax challenges from the digital economy the EU Commission presented its so-called “Digital Tax Package”, which mainly consists of two draft Directives and one Recommendation to the EU Member States. This package supports the Commission’s key priority of completing the Digital Single Market, which also takes into account the global dimension: the OECD has committed to bring forward a report on the next steps internationally by 2020.

Legislative proposals in a nutshell

Draft Directive on the corporate taxation of a significant digital presence:

  • To reform corporate tax rules so that profits are allocated and taxed where businesses have significant interaction with users through digital channels (assumption of a taxable digital presence or a virtual permanent establishment);
  • This is the EU Commission’s preferred long-term solution.

With respect to non-EU countries, not captured by this Directive, the EU Commission issued a Recommendation to the Member States for adaption of such rule via the double tax treaty (see also below).

Draft Directive on Digital Services Tax (DST):

  • To introduce a DST of 3% on certain revenues from digital activities;
  • The introduction of a DST is considered as an interim solution until the above long term solution is in place.

As a next step, both legislative proposals will be submitted to the European Council for adoption and to the European Parliament for consultation. If adopted by unanimous vote, the expected effective date would be 1 January 2020.

Legislative proposals in detail

Draft Directive on the corporate taxation of a significant digital presence (long-term, comprehensive solution)

A digital platform shall constitute a significant taxable digital presence in an EU Member State if it fulfils one or more of the following criteria:

  • Total annual revenues from digital services to users in that Member State in a taxable year exceed a threshold of EUR 7 million, and/or
  • Users of digital services in that Member State in a taxable year exceed 100’000, and/or
  • Business contracts for digital services in that Member State in a taxable year exceed 3’000.

The new rules would also change how profits are allocated to Member States in a way which better reflects how companies can create value online: for example, depending on where the user is based at the time of consumption or where the value is generated through user participation.

Such directive would apply to all companies that are resident in an EU member state. It would also apply to companies in non-EU member states rendering digital business to EU based users and customers unless there is a double tax treaty in place which does not provide for similar rules on significant digital presence and profits attribution (this is for the time being the case, since currently existing double tax treaties do typically not allow for such digital taxation). Hence the below recommendation to the EU member states to re-negotiate double tax treaties to include such digital business taxation rules.

Draft Directive on Digital Services Tax (short term, interim solution)

Unlike the common EU reform of the underlying tax rules, the interim DST would apply to revenues created from certain digital activities which under the current tax rules would not be taxed in the countries where the value is generated. This DST would only remain in force as an interim measure, until the comprehensive solution is in place. However, it would apply to any company rendering digital services in the EU irrespective whether an EU member state based company or not and irrespective of existing double tax treaties.

The tax would apply to revenues created from activities where users play a major role in value creation and which are the hardest to capture with current tax rules, such as those revenues:

  • created from selling online advertising space;
  • created from digital intermediary activities which allow users to interact with other users and which can facilitate the sale of goods and services between them;
  • created from the sale of data generated from user-provided information.

The DST would only apply to companies with total annual worldwide revenues of EUR 750 million and taxable revenues of EUR 50 million in the EU. This would help to ensure that smaller start-ups and scale-up businesses remain unburdened.

Recommendation relating to the corporate taxation of a significant digital presence

In connection with the long term Draft Directive on the corporate taxation of a significant digital presence, the EU Commission also issued an accompanying Recommendation to the EU Member States for cases where the proposed Directive would not apply, i.e. when Member States have tax treaties in place with non-EU countries (which would also be the case for Switzerland).

In particular the EU Commission recommends to Member States to amend their tax treaties with non-EU countries by a) changing the definition of permanent establishment to take into account significant digital presence and b) including rules for respective profit attribution.

For further details regarding the EU Digital Tax Package please refer to the detailed newsletter of the PwC Network EUDTG.

Implications of proposed rules for Switzerland

Although the above legislative proposals are EU Directives, the directives still impact companies operating out of Switzerland or other non-EU states, if finally adopted.

Draft directive on Digital Services Tax:
The DST would affect Swiss groups performing digital services in the EU as the tax becomes due if the user / customer is in the EU, provided they meet the thresholds mentioned above.

Draft directive on the corporate taxation of a significant digital presence:
These rules shall not apply if an entity is resident for tax purposes in a non-EU jurisdiction (e.g. Switzerland) that has a double tax convention (DTC) in force with the relevant Member State, and if the DTC does not provide for a taxable digital presence (which is currently the case for all Swiss DTCs). Hence, groups operating out of Switzerland are expected to be affected by this potential measure only in the longer term, i.e. when DTCs are renegotiated (as proposed in the EU Commission’s Recommendation) to include the taxable digital presence, subject also to any further OECD developments.

For further details on the progress of the OECD work in this respect as well as for a summarised overview of the different approaches between the OECD and the EU, please find here OECD’s Interim Report 2018 respectively our PwC Tax Policy Bulletin.

Overall, the attractiveness of Switzerland as a location for digital businesses is not negatively impacted compared to the EU as a result of these directive proposals.

Related VAT Aspects

Even if the digital taxation proposals implicate significant changes in the corporate tax landscape, from an indirect tax (VAT) point of view the taxation of turnovers for digitally provided services at the place of the consumer (B2C) is already in force in the EU since 2015. However, the question remains whether the digital presence will also affect the definition of fixed establishments for VAT purposes and such change would have a major impact on how digitally provided services would be taxed in a B2B context.

Current position of Switzerland regarding taxation of digital economy

The State Secretariat for International Finance (SIF) recently has performed an analysis regarding the taxation of the digitalised economy and is generally committed to tax rules that allow for and promote fair competition. However, there have not been any concrete measures yet. In any case Switzerland holds the opinion that measures outside the scope of DTCs are to be avoided and interim measures (e.g. DST) should be limited in scope and time. Read SIF’s position on taxing the digitalised economy here.

Call for action

At this stage it is not clear yet whether respectively how the proposed directives will be adopted by the EU (formal adoption still pending and subject to unanimity among the EU Member States). Further, also the developments on the OECD BEPS project should be taken into consideration and monitored.

Nevertheless, it is recommendable for groups operating out of Switzerland to:

  • identify the digital services rendered in each of the EU Member States;
  • start performing impact assessments of (i) the DST and (ii) a taxable digital presence in the EU Member States, and
  • continue monitoring the EU legislative process and potential unilateral country measures (such as the unilateral measures in Italy, introducing a new tax on digital transactions effective January 1, 2019).

Your contacts

Stefan Schmid
Tel. +41 58 792 44 82
E-Mail: stefan.schmid@ch.pwc.com

Anna-Maria Widrig Giallouraki
Tel. +41 58 792 42 87
E-Mail: anna-maria.widrig.giallouraki@ch.pwc.com

Christa Elsässer
Tel. +41 58 792 42 66
E-Mail: christa.elsaesser@ch.pwc.com

Jeannine Haiböck
Tel. +41 58 792 43 19
E-Mail: jeannine.haiboeck@ch.pwc.com

QI and CRS Updates

IRS opens QI portal for the Responsible Officer Certification and published new FAQs

On 4 April 2018, the Internal Revenue Service (“IRS”) has opened the QI portal and published new FAQs regarding the upcoming QI Responsible Officer certification. A new section titled “Periodic Certification” has been added to the existing FAQs.

Please refer to the following link for access to the updated FAQs.

Additionally, the IRS has updated the QI User Guide and made it available on its website (see “Publication 5262”). You can find the updated QI User Guide here.

OECD news regarding CRS

On 5 April 2018, the Organisation for Economic Co-operation and Development (“OECD”) published an updated list of all activated CRS agreements on its website.

Please refer to the following link for access to the updated list.

There are now more than 2700 bilateral agreements in place.

Additionally, the OECD published an updated version of the CRS Implementation Handbook, which can be accessed under the following link.

The Implementation Handbook is a guidance for governments to refer to in terms of their implementation of CRS rules into their local legislation and guidance, as well as a practical overview of CRS for the financial sector and the wider public.

We will continue to keep you updated as we follow and analyze these updates over the next few days. In the meantime, we are happy to answer any of your QI- and CRS-related questions.

Contact

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

EU Direct Tax Group: January – February 2018

The following topics are covered in this issue of EU Tax News:

CJEU Cases

  • Germany – CJEU referral of German dividend withholding tax regime to in the case of a Canadian pension fund
  • Germany – AG Opinion on the compatibility of German Trade Tax exemption with EU law
  • Netherlands – CJEU judgment on compatibility of Dutch group taxation regime with EU fundamental freedoms
  • Spain – European Commission opens infringement procedure against Spanish state liability regime

National Developments

  • Italy – Italian court rules on incompatibility of presumption of abuse/tax evasion with EU freedom of establishment
  • Spain – Appeal at the Spanish Supreme Court against Andalusian tax on deposits on financial entities
  • Spain – Appeal at the Spanish Supreme Court on the rules to eliminate international double taxation

EU Developments

  • EU – European Commission publishes Roadmap on Evaluation of Administrative Cooperation in Direct Taxation
  • EU – European Commission announces comprehensive fitness check on public reporting by companies within the EU
  • EU – European Parliament sets up TAXE 3 Special Committee on financial crimes, tax evasion and tax avoidance

Read the full newsletter

This bi-monthly newsletter is prepared by members of PwC’s pan-European EU Direct Tax Group (EUDTG) network.

To receive this newsletter and our newsalerts automatically and free of charge, please send an e-mail to: eudtg@nl.pwc.com with “subscription EU Tax News”. For previous editions of PwC’s EU Tax News see: www.pwc.com/eudtg

Contact Us

Armin Marti
Partner Tax & Legal Services, Leader Tax Policy
+41 58 792 43 43
armin.marti@ch.pwc.com

Geneva International VAT Breakfast: E-invoicing & hot topics in indirect taxes

E-invoicing & hot topics in indirect taxes

So far, 2018 has been a very dense year for indirect tax professionals with various hot topics arising. In Switzerland, for instance, the recent clear rejection of the initiative “No Billag” will lead to changes in the scope of the radio-television fees that will be applicable to businesses as from 1 January 2019.

At the same time, compliance with e-invoicing and e-archiving obligations are being introduced in various jurisdictions such as Italy. During our upcoming event, we will go through the new rules and the compliance obligations across EU and Switzerland in terms of e-invoicing and e-archiving.

We will also follow up on the definition of fixed establishment providing insight on the recent developments particularly in Poland. The International VAT Breakfast will also feature recent hot topics that can impact businesses operating worldwide, such as the EU commission proposal for flexible VAT rates, the measures to strengthen VAT fraud prevention adopted by EU and non-EU countries and the introduction of the reverse charge mechanism for imports of goods in Portugal as from 1 March 2018.

Finally, as always, we will share with you the most significant developments with respect to the EU and Swiss case law.

To register for this event: Click here

Contact us

Patricia More
Tel.+41 58 792 95 07
patricia.more@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

Manage VAT risk and gain valuable business insight with VATwatch

What’s the problem?

Being in control of your VAT data is becoming more crucial than ever. This stems from the fact that the tax authorities could have more information about your company’s VAT operations than you do. How is this possible?

It’s down to the growing complexity of the indirect tax compliance and control framework and the emergence of new reporting requirements globally. In response to these developments, tax authorities are no longer conducting sample checks, since they can use instant access to a company’s ‘raw’ accounting data and scan them to assess its VAT liability.

If you don’t have proactive control processes to review your transactional data and take action before this information is transmitted to the tax authorities, the consequences can be severe: more VAT audits, and increasingly complex questions from the authorities.

How can VATwatch help?

PwC’s VATwatch solution gives you a global overview of your flows, and helps you detect potential discrepancies and mismatches within your data before they’re identified by the tax authorities.

How can VATwatch help you manage VAT risk and gain valuable business insight?

Read more about VATwatch here to find out more about the benefits of our solution.

Do not hesitate to contact us to further discuss your situation.

Patricia More, TLS VAT Partner, PwC Geneva
+41 58 792 95 07 / patricia.more@ch.pwc.com

Antoine Wüthrich, Risk Assurance Partner, PwC Geneva
+41 58 792 82 27 / antoine.wuthrich@ch.pwc.com