FS-Talk: Regulation

Watch the first edition of our FS-Talk, our regular video series on current trends and topics. This episode covers the topic of regulation. Samuel Gerber from Finews interviews Dieter Wirth, Head Financial Services of PwC Switzerland.

 

FS_youtube

 

Stay tuned for the next episode which will be released in just a few months!

If you´re interested in this topic or have any questions connected with it, please feel free to contact Dieter Wirth.

EUDTG Newsletter January – February 2016

EU direct tax law is a fast developing area. This presents taxpayers, in particular groups and multinational corporations that have an EU or European Economic Area (EEA) presence, with various opportunities.

 

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

 

CJEU Cases

  • Belgium: CJEU referral regarding Belgian legislation on savings deposits

National Developments

  •  France: Reverse discrimination between domestic and cross-border situations contrary to constitutional principle of equality
  • Germany: Federal Fiscal Court judgment on the application of the standstill clause to flat rate taxation of domestic investors
  • Italy: Regional Tax Court judgment on capital gains taxation of shares in non-resident taxpayers
  • Poland: Reduced penalty interest rates for investors suffering capital gains taxes in Poland
  • Spain: Amendments to the Spanish Patent box regime
  • Sweden: Currency loss on shares non-deductible under EU law
  • Sweden: Currency loss on receivables deductible under EU law
  • Switzerland: New positions introduced for parliamentary discussion regarding the Swiss Corporate Tax Reform III
  • United Kingdom: High Court allows FIDs claims
  • United Kingdom: EU law challenges to new restitution interest tax provisions

EU Developments

  • EUEuropean Commission presents EU Anti-Tax Avoidance Package (ATAP)
  • EU: February ECOFIN Council sees first public debate on European Commission’s ATAP
  • EU: European Commission launches public consultation on double taxation dispute resolution
  • EU: European Parliament’s Policy Department A publishes new policy analysis papers on EU direct tax topics prepared for ECON
  • EU: Luxembourg EU Presidency’s 6-monthly ECOFIN Council progress report to the European Council on Tax Issues
  • EU: Luxembourg EU Presidency’s 6-monthly progress report on the EU Code of Conduct (Business Taxation) to ECOFIN
  • EU: Netherlands 6-monthly rotating EU Council Presidency EU tax priorities for the first half of 2016

Fiscal State aid

  • Belgium: European Commission final State aid Decision on the Belgian excess profit tax ruling system
  • Germany: EU General Court Judgment on German change of control rules and State aid
  • Netherlands, Belgium, France: European Commission State aid Decisions regarding the corporate taxation of ports
  • Netherlands: Dutch Government appeals European Commission’s Starbucks Decision
  • Spain: European Commission appeals General Court Judgment on Spanish Tax Lease

Read the full newsletter here.

This EU Tax Newsletter is prepared by members of PwC’s international EU Direct Tax Group (EUDTG).

Further information about our service offerings in EU taxes: www.pwc.com/eudtg

Studies by PwC on women in business

In connection with International Women’s Day, in the last few days PwC has published three studies on the theme of women in business.

International_Womens_day_1

Modern mobility: moving women with purpose
More women than ever are internationally mobile. But there’s still a major gap between the aims and aspirations of these women and what their employers are offering. The report brings together the views of 134 global mobility executives and 3,937 professionals from over 40 countries.

 

International_Womens_dayPwC Women in Work Index 2016
The index ranks 33 OECD countries according to a benchmark based on key indicators of female economic empowerment: gender pay equality, the rate of female labour force participation (both in absolute terms and by comparison with men), female unemployment, and women in full-time employment. As in previous years, Scandinavian countries top the rankings. Switzerland remains in tenth place.

 

International_Womens_day_2Next Generation Survey 2016: The Female Perspective
This report looks at the perspective of female family business leaders on the basis of a survey of 73 women in 25 countries. Despite the fact that companies with women at board or operational management level often do better, a lot more grassroots work will have to be done if more women are to get the opportunity to take on these roles. The report concludes that one in five women don’t believe they have the same chances of success as men in the family business.

Please contact Charles Donkor or Jasmin Weisshaar if you have any questions.

 

IFRS 16 leasing standard effective 1 January 2019 announced by IASB

Leasing is an important financial solution that many companies resort to so that they can use property, plant and equipment without incurring major initial cash outflows. Under the existing rules, lessees generally usually recognise lease transactions either as off-balance-sheet operating leases or on-balance-sheet finance leases. Under the new standard, lessees will have to account for just about all leases on the balance sheet. This will reflect their right to use the asset for a period of time and the associated liability to pay the lease instalments. The accounting model for the lessor remains more or less unchanged.

What’s the issue?

Since just about all companies use rentals or leasing to get access to assets, most will be affected by the new standard. Balance sheets will grow, leverage ratios will be eroded, and capital ratios will decline. Both the expense character and the recognition pattern will change. The new standard will impact almost all common financial metrics such as gearing ratio, current ratio, asset turnover, interest cover, EBIT, operating profit, net income, EPS, ROCE, ROE and operating cash flows. This may have knock-on effects on an entity’s arrangements with different stakeholders such as banks and lenders, investors and analysts and employees, and prompt them to reassess certain lease versus buy decisions in the future. The impact on the accounting and financial levels is only the tip of the iceberg. These rules are so pervasive that they may require organisations to transform their business processes in many areas including finance and accounting, IT, procurement, tax, treasury, legal, operations, corporate real estate and HR.

How can we help?

The accounting literature is sometimes form-driven and often complex, and applying it to the specific facts and circumstances of your business can be a challenge. We have a team of leasing specialist across the world who can help with:

  • ‘As is’ analysis: We’ll help you understand how the standard is likely to impact you, how to raise awareness, what you need to do, and who you need to get involved to implement it.
  • Building a roadmap: We can help you project manage the implementation process and ensure that you have a robust governance structure in place.
  • Advice on technical accounting: The new standard requires an in-depth grasp of leasing, the applicable guidance, and new interpretations and judgments. We have the expertise and tools to help you get it right.
  • Gathering and analysing lease data: We have automated extraction tools to help you gather relevant data, plus the analysis capabilities and modelling tools to help you understand the impact of leases and make the right decisions.
  • Changing your business and lease strategy: You might realise that the changes in lease accounting and greater transparency mean changes in your contracts or the way you decide on leasing versus buying. We can help you evaluate the risks, areas where you could save costs, and ways for you to optimise your lease portfolio.
  • Selecting and implementing software vendors: Complying with the new lease standard may require you to implement new systems, business processes and controls. We’re familiar with the lease software vendors and can help you assess, choose and implement the right vendors and software applications.

Get in touch with us to find out how we can help you make your financial reporting compliant with the leasing standard – and manage your lease business and process transformation in an efficient and measured way.

Contacts

Capital Markets and Accounting
Advisory Services (CMAAS)
Assurance IFRS Technical Office
Christophe Bourgoin
Partner
+41 58 792 25 37
christophe.d.bourgoin@ch.pwc.com
David Mason
Partner
+41 58 792 94 90
david.mason@ch.pwc.com
Christian Witte
Senior Manager
+41 58 792 25 67
christian.witte@ch.pwc.com
Gesa Mannigel
Director
+41 58 792 24 54
gesa.mannigel@ch.pwc.com
Daniel Knechtli
Senior Manager
+41 58 792 26 41
daniel.knechtli@ch.pwc.com

Our recent publications on IFRS 16

The security risks of video and online identification

The digitisation of processes is a core issue for the Swiss financial industry. To create and elaborate the necessary regulatory framework, in December 2015 FINMA issued a draft circular governing the video and online identification of clients. In the meantime the final version of the FINMA circular has been published. In our first blog at the beginning of February we presented the draft FINMA circular on video and online identification. In the second we looked at the opinions expressed in the public consultation. In this, our latest entry, we address the concrete challenges involved in video and online identification.

Since 1 January 2016 the revised Anti-Money Laundering Ordinance has been in force. This has enabled FINMA to take account of new technologies designed to assure the requisite level of security in meeting the relevant due diligence requirements. FINMA also has to make this practice public, and has accordingly published the FINMA circular 2016/7 on video and online identification on 17 March 2016. The circular describes the due diligence requirements for intermediaries onboarding clients via digital channels without gaps in the information process. This is an opportunity for the Swiss financial industry to put the digitisation of business processes into practice. Our aim is to show where the risks lie and advise on how to deal with them.

Read more about the security risks here.

Further blogs
Read more about the digitisation of processes in the Swiss financial industry and about other key developments in this field in the next articles in our blog series on video and online identification.

If you´re interested in this topic or have any questions connected with it, please feel free to contact our experts:

Jens Probst
Director, Systems & Process
Assurance
jens.probst@ch.pwc.com
+41 58 792 29 59

Christian Hug
Senior Manager, Leader Information Governance
christian.hug@ch.pwc.com
+41 58 792 23 66

Marco Schurtenberger
Manager, Cyber security & IT
compliance
marco.schurtenberger@ch.pwc.com
+41 58 792 22 33

Withholding Tax: New Practice in Zurich for determining Swiss working days

As of 01 January 2016, the canton of Zurich has changed the practice for calculating Swiss working days for foreign / non-Swiss employees. As a consequence, the number of working days subject to wage withholding tax to be considered by the employers in Switzerland increases. This change affects all employers in Zurich with employees who are not tax resident in Switzerland and who are, thus, subject to wage withholding tax.

Previous practice valid until 31.12.2015

Previously, only the working days effectively rendered in Switzerland were subject to taxation. In this context, the only days considered relevant for tax purposes were (1) those on which employees physically worked in Switzerland; (2) sick days in Switzerland, provided the illness did not prevent the employee from leaving the country; and (3) presence days on which the performance of work duties was not possible due to exceptional circumstances. The respective Swiss working days were verified using a calendar.

New practice valid from 01.01.2016

The new publication also mentions that only the working days effectively performed in Switzerland shall be subject to taxation. However, for reasons of simplification, Swiss working days are now determined by assuming 20 fictitious working days per month and then subtracting the effective foreign working days. In this context, working days in a country other than Switzerland, as well as arrival and departure days on which all or the majority of the work was performed in a country other than Switzerland, are considered foreign working days. The respective foreign working days are to be verified using a calendar.

Consequences of the new wording in practice

Necessary documentation

To verify the foreign working days, the employee has to use a calendar, as before.

Scope of taxation in Switzerland

Based on the old practice, the gross income was allocated to a foreign country using the ratio between foreign working days and total working days. This led to paid non-working days such as vacation days and sick days being distributed proportionally to total working days performed in Switzerland and abroad and being taxed accordingly. The new rule leads to all paid foreign non-working days being subject to taxation in Switzerland.

Due to the wording chosen, there is an increased risk of double taxation of the respective income by both the country of residence and Switzerland.

Rulings

The tax administration of the canton of Zurich is planning to review established rulings with respect to the new practice and to demand modifications, if deemed necessary. Future rulings have to follow the new regulation. In future, in exceptional cases, case-specific rulings are to remain an available option.

Our assessment

In view of the current federal court practice

In several instances, the federal court has determined that the liability to pay taxes in Switzerland requires the personal presence of the employee in Switzerland. Due to the simplified formula described above, however, the days subject to taxation include not only Swiss working days, but also foreign non-working days (such as vacation days and holidays), which stands in contradiction to current jurisdiction.

In view of the double tax treaties

With regard to earned income, the double tax treaties entered into by Switzerland limit the taxation right of Switzerland for non-Swiss resident employees to the income earned for working days actually performed in Switzerland.

Conclusion and next steps

The new regulation leads to a simplification of the procedure for the tax authorities. At the same time, however, the tax authorities expand the taxation right for Switzerland in a way, not in line with the current court practice and the double tax treaties in force. In addition, it can be assumed that other cantons might consider following the example set by the canton of Zurich, adjusting their practice accordingly.

There is no need for action in cases in which the employee has only one employer and works exclusively in Switzerland.

However, in case the employee works abroad on a regular basis or has multiple employers (in Switzerland and abroad), the consequences should be analyzed in more detailed. In case the new approach leads to a less favorable tax treatment or triggers an over-taxation or double taxation, it is recommendable to analyze the respective case and applying for a ruling confirmation. We will gladly support you in this.

Please contact our experts:

Brigitte Zulauf
PwC Zürich, Partner
Office: +41 58 792 47 50
E-mail: brigitte.zulauf@ch.pwc.com
Nathanael Frischkopf
PwC Zürich, Director
Office: +41 58 792 10 75
E-mail: nathanael.frischkopf@ch.pwc.com
Christian Buchert
PwC Zürich, Director
Office: +41 58 792 97 83
E-mail: christian.buchert@ch.pwc.com

The UCC and the exporter saga – myths, facts, latest developments – an opinion

The Union Customs Code (UCC) will be applied from 1 May 2016 and it carries some changes impacting not only EU, but also non-EU established operators. As discussions between the EU commission, businesses and public administrations shape up, it is becoming apparent that the changes will point to streamlining, rather than fundamentally amending EU customs rules.

A topic that received much attention recently relates to the definition of the exporter, the wording of which led to brainstorming with dubious outcomes.

So what is it all about?

Under the UCC, the definition of the exporter moved from a competency-based definition (i.e., the export declaration is to be lodged at the customs office where the exporter is established or where the goods are loaded for export) to a material definition (i.e., what the term ‘exporter’ means).

The new rules explicitly aim to align the rights and obligations of the exporter with the obligations deriving from the export control / dual-use regulations. This has already been the main reason for requiring an EU-established indirect customs representative in the past; nevertheless, it may not have been apparent from the wording of the legislation.

Customs administrations have however long been interpreting the requirements towards an exporter as twofold – namely the correct procedural handling/filing of documents and the responsibilities vested with an exporter in terms of securing and controlling its supply chain. The latter moreover in a way that allows EU authorities to take recourse against the exporter in the case of non-compliance. A non-EU established exporter is hard to catch nowadays.

These are the facts, but what is the myth?

On account of this change in the wording, discussions started to imply that non-EU established entities cannot export from the EU any more, despite having absolutely reasonable and legally stable supply chains.

Further suggestions pointed to a strategic long-term interlinking of the OECD BEPS movement and revision of the permanent establishment (PE) definition with the clear aim to create more/require PEs also for customs purposes. The alarm bells rang more and more loudly, from the lovely Swiss Alps all the way to Brussels.

You’ll find the full article on our CUSTOMised Blog.

India’s 2016 budget affects foreign investors and multinational enterprises

The Indian Finance Minister on February 29, 2016, presented the 2016 budget, the third budget released by the current government. The budget proposals would take effect after passing both houses of Parliament and obtaining presidential assent.

Changes included in the budget are:

  • Reduction of the corporate tax rate for domestic companies with total revenue not exceeding INR 50 million (approximately USD 750,000) to 29%.
  • The government is planning to conclude other tax incentives, amongst others the ‘super deductions’ for research and development.
  • To reduce the compliance burden, an amendment was proposed wherein a non-resident or a foreign company who is entitled to receive any income from India or amount on which tax is deductible shall be relaxed from applying PAN and furnish the same. Nevertheless, non-residents still would need to hand-in certain documentation and meet further conditions. The proposed amendment will take its effect from June 01, 2016. Until there is clarification about these parameters, we recommend still applying for a PAN.
  • To encourage indigenous research and development activities, the budget proposes introducing a 10% (plus applicable surcharges) tax rate on royalty income of an Indian resident. The 10% rate would apply only if the Indian resident develops and owns the patent, and the patent is registered in India.

Furthermore, India introduces a three-tiered TP documentation approach – including CbCR, which is largely in line with the BEPS Action 13 except some other provisions and significant penalties in case of violation. The new regime will cover financial years 2016-2017 and the first filing is due by November 30, 2017. The proposed measures also include specification on the affected taxpayers and filing information for members of group companies. Indian-headquartered multinational enterprises (MNEs) with global consolidated revenues exceeding the prescribed threshold (expected to be EUR 750 million) would be required to comply with the CbCR requirements.

Click here for the detailed newsletter regarding the three-tiered TP documentation.

Click here for the detailed 2016 budget newsletter and learn about its impact on foreign investors.

For a deeper discussion of how this issue might affect your business, please contact:

Norbert Raschle
Partner
Tel. +41 58 792 1652
norbert.raschle@ch.pwc.com
Roger Wetli
Senior Manager
Tel. +41 58 792 4571
roger.wetli@ch.pwc.com

CTR III VD

In September 2015, the modification of the Vaud income tax law (“LI”) has been voted by a large majority of the cantonal Parliament. Following said vote, two extreme left-wing parties launched a referendum against the revised bill. Last week end, the amendments of the bill have been approved by a surpringly vast majority of the voters (87% in favor of the new law).

The elements disclosed in the package that has been accepted can be summarized as follows:

1. Taxation of corporations

  • Abolishment of all privileged tax regimes granted at cantonal / communal level – i.e. mixed company tax regime as well as the holding tax status (provided in art.108, 109 LI). The abolishment of the articles will be effective as from January 1st 2019 onwards;
  • General reduction of the corporate income tax rate applicable at cantonal / communal level. The new rate will lead to a global effective tax rate (including federal, cantonal and communal levels), from January 1st 2019 onwards, of 13.79%;
  • Adaptation of the tax rates applicable to the “minimum tax” (art, 126 LI);
  • Harmonization of the capital tax. Regardless of the type of taxation applied to a company located in the canton of Vaud (art 118 LI), such entity will pay capital tax on the taxable equity at a rate of 0.06% to which communal multiplier will be applied (in general ranging from 2 to 2.5). The possibility to credit on the equity tax the income tax remains possible. This measure will enter into force from January 1st 2016 onwards.

2. Taxation of individuals

  • Rental values determination (deemed income for individuals owning real estate): modification of the lump sum deduction (increase from 20% to 30%) applicable to real estate aged over 20 years. The aim of this measure is to reduce the taxable amount resulting from owning real estate for a long period of time (measure aimed for retired persons to whom rental values represent an important income tax burden);
  • Increase of the lump sum deduction for health, life and accident insurance;

3. Taxation of individual who have the right to benefit from lump-sum taxation

Modification of the lump sum taxation principles as per the modifications voted at federal level. Such taxation principle is applied to non-Swiss resident who do not carry out any lucrative activities in Switzerland. Modifications are as follows:

  • Such regime will not be granted to persons with a Swiss passport. In the past, this was possible for a Swiss citizen to be married to a foreigner who was taking profit of this privileged tax regime and be granted with said regime. It was also possible to request such type of taxation regime for a Swiss citizen returning from abroad to Switzerland in the course of the first fiscal year following the return;
  • Requirements for the lump sum taxation will have to be met by both spouses;
  • Minimal lump sum amount to be determined as follows (maximal amount of the three values mentioned below and will be provided in art 15, al.3 LI):
    – CHF 400’000 of taxable basis;
    – 7 times the rental values of real estate owned;
    – 3 times the costs of lodging – amounts paid for living.
  • From January 1st 2016 onwards, lump sum taxation will also have to cover the wealth tax due by a lump sum taxpayer on its wealth attributable to Switzerland. In the canton of Vaud, it results in an increase of the minimal lump sum amount to CHF 415’000. If the determination as per the rental value or the lodging costs lead to a higher amount, percentage applied on such value or on such costs will be used to reflect wealth tax value in the determination of the lump sum amount.

4. Modification applicable to both corporations and individuals (admin matters only)

  • Payment of the taxes due. The system will be modified for corporations to align it on the one applied to individuals (monthly payment of corporate income tax amount – applicable for FY16 onwards);
  • Formal modifications of the Vaud tax law in order to reflect latest adjustments of the Swiss commercial code – formal requirements regarding the presentation of the financial statements of a company, etc.

5. Further modifications

The above mentioned bill does not include all elements currently under discussion at the federal level (Patent Box, Notional interest deduction, step-up mechanism). However, please note that there will be a transition clause that in case Vaud tax law has not legalized the step up, which will set up tax treatment of hidden reserves after abolishment of special regimes, or other federal tax reform elements into its Cantonal law as per 1 January 2019. Such transition clause will ensure that the introduction of the reduced tax rate and abolishment of special regimes as per 1 January 2019 in Vaud is aligned to the benefits to be introduced by federal tax reform timing wise.

A complete summary of parliamentary debates can be found on PWC newsletter.

Fully automated off- shore tax reporting for your private clients in Europe

Banking clients’ needs, and as a result the requirements placed on banks, have changed in recent years. Country-specific tax reporting is becoming ever more important for banks’ cross-border services. In order for a tax statement to be able to be used to prepare a banking client’s personal tax return, these regulations needs to take into account how the different forms of income and assets are taxed in the client’s country. Only then can a tax statement provide added value for the client.

In order to offer Avaloq banks a unique and quality product in this field, PwC is working closely together with the IT experts at Confinale, with PwC bringing the tax knowledge and Confinale the IT knowledge. Together we have developed off-shore reporting functionalities, which are fully integrated into the Avalon Banking Suite, for all important client markets.

Read the full Report here.

 

Please contact with any question about the report Dieter Wirth or your previous contact at PwC.