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

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

PwC’s 2018 Global Economic Crime and Fraud Survey: Should Swiss companies be worried?

PwC’s Global Economic Crime and Fraud Survey 2018 reveals that 49% of global and 39% of Swiss organisations experienced economic crime in the last 24 months.

Could this mean that the problem is diminishing? Or are Swiss organisations simply not aware they have already fallen victim to economic crime?

In this blog post we will be examining the true nature of the threat and exploring whether companies be taking smarter measures to combat economic crime.

Does an apparent decline in fraud reflect the true story?
Despite a number of recent high profile fraud cases globally, PwC’s Global Economic Crime Survey suggests that the problem isn’t proliferating in Switzerland. The percentage of Swiss organisations who have experienced fraud in the last two years has decreased from 41% in 2016 to 39% in 2018. This figure looks even more positive when compared with the global (49%) or western European (45%) results. But is the result really that good?

We believe it isn’t. The survey data reveals some disconcerting facts.

Bribery and corruption are increasingly on the radar. In 2018, 27% of the Swiss respondents reported that they had been asked to pay a bribe, up from 9% in 2016. One in five respondents (20%) believe that their firms lost an opportunity to a competitor who paid a bribe within the last 24 months, up from 11% in 2016. While this shows growing awareness of, and confidence in acknowledging bribery and corruption, it also suggests that companies have to become even more alert to the threat of the problem and its implications in terms of competitiveness.

Secondly, the mean direct loss attributable to each incident of fraud in Switzerland was almost CHF 10 million – more than five times the global figure. While this may be due in part to the size of the Swiss economy and the prominence of banking and financial services sector– a particularly attractive target for fraudsters – it demonstrates that this is not a trivial problem. The size of monetary damage is significant.

Fighting fraud blindfold, or with eyes wide open?
While the lower fraud level reported in Switzerland may be due to an effective legal framework and law enforcement system, it could also reflect a temptation for organisations to overestimate the effectiveness of their systems and controls. Only one in three (33%) Swiss respondents performed a general fraud risk assessment over the two-year survey period which is substantially less than respondents globally (54%). Against this backdrop there’s a considerable risk that economic crime will go unnoticed and unreported, especially if an organisation doesn’t have access to management reporting concerning fraud.

Fraudsters down but not out, and moving quickly with the times
Swiss respondents reported that asset misappropriation (51%) and cybercrime (44%) were the two most common types of fraud experienced by their organisation with the latter also being perceived as a significant threat in the future. In order to be adequately prepared, organisations need to keep track of changes in the overall fraud risk landscape and the fact that Swiss respondents recognise cybercrime as the most significant risk going forward is encouraging.

However, our survey – both globally and in Switzerland – suggests that there’s still a failure to recognise the true nature of the threat, especially with growing business and consumer digitisation, the increasing sophistication of attacks, and heightened data security expectations amongst stakeholders. As the latest digital technologies help fraudsters become more strategic in their goals and more sophisticated in their methods, companies urgently have to make cybersecurity – the mitigation of cybercrime – a boardroom priority.

Unlike other types of fraud, cybercrime is a means to commit other types of fraud rather than being a stand-alone offence. Three in ten Swiss respondents suffered disruption to their business processes after having been the victim of a cyber-attack. More than a quarter of Swiss respondents (28%) were a victim of extortion and more than a fifth (23%) reported that a cyber-attack was used as a conduit to commit asset misappropriation against their organisation.

Efforts have to be more intelligent and better coordinated
While the 2018 survey shows that Swiss firms are taking cybercrime seriously, it also suggests that they need to work harder to be in line with global standards. Best practice organisations have adopted a ‘three lines of defence’ model, dividing responsibilities between functions that own and manage risk, those that oversee or specialise in risk management and those that provide independent assurance. It’s important to ensure that each of these functions also adequately addresses cyber risks.

In reality, only 54% of Swiss respondents have an operational cybersecurity programme, 5% below the global average and 7% below the average for Western Europe. Overall the global survey reveals serious blind spots when it comes to recognising the specific risks of fraud and economic crime. The trick is to recognise these blind spots before any fraud incident takes place. While it’s encouraging that 92% of Swiss firms expect to either significantly increase (6%), increase (25%) or maintain (61%) the amount of funds used to combat fraud, the issue is more about how these funds are actually spent. Presently, the stumbling block is often a lack of coordination and a failure to see the big picture.

The areas of a business that investigate fraud, manage fraud risks and report to the board or regulators are often disjointed and siloed. If each department builds a programme based on their own perception of fraud, operational gaps will eventually arise. So it’s vital to ensure all stakeholders understand the big picture of fraud risk management and how their own function fits into it. For global companies, establishing a centralised fraud detection and investigation function is a very good starting point.

And for any organisation, we can suggest four golden rules of effective fraud prevention:

Instant takeaway: four steps to fight fraud

  • Recognise fraud when you see it
  • Take a dynamic approach
  • Harness technology
  • Invest in people, not just machines

Follow these rules of thumb and you’ve already increased your chances of navigating an increasingly complex economic crime landscape. If you want to find out more, check out PwC’s Global Economic Crime and Fraud Survey 2018, and the deep dive into the Swiss findings ((link)), or contact us for a more in-depth conversation about how to tackle fraud and economic crime.

OECD Issues Model for Mandatory Disclosure of CRS Avoidance Schemes

On 9 March 2018, the Organisation for Economic Co-operation and Development (“OECD”) issued new model disclosure rules that require the mandatory disclosure of OECD Common Reporting Standard (“CRS”) avoidance schemes. The model will require lawyers, accountants, financial advisors, banks and other service providers to inform tax authorities of any schemes they put in place for their clients to avoid reporting under the CRS. Additionally, under the model, reporting of structures that hide beneficial owners of offshore assets, companies and trusts is required. The OECD also hopes to deter the design, marketing and use of these arrangements and schemes and bolster the overall integrity of the CRS.

The document issued by the OECD provides background information regarding the CRS anti-avoidance topic, includes text of the model itself, as well as a commentary to explain the model. As a next step, the model disclosure rules will be submitted to the G7 presidency in an effort to adopt a wider strategy of monitoring and acting upon market tendencies to avoid CRS reporting and hide assets offshore. Within the scope of the CRS anti-avoidance work, the OECD is also addressing cases of abuse of golden visas and other schemes used to circumvent CRS reporting.

Please refer to the link for access to the OECD’s new model disclosure rules.

Additionally, please refer to the link for access to the OECD’s accompanying FAQs.

Contact

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

‘Basel IV’: Big bang –or the endgame of Basel III?

The Basel Committee on Banking Supervision’s announcement –December 2017

On Thursday 7th December 2017, the Basel Committee for Banking Supervision (‘BCBS’) published the final instalments of its reforms for the calculation of risk weighted assets (‘RWA’) and capital floors.

These papers complete the work that BCBS has been undertaking since 2012 to recalibrate the Basel III framework. Basel III was introduced to address the most pressing deficiencies that emerged from the 2007-08 crisis and make banks more resilient.

The finalised reforms, together with earlier publications that revise the calculation of RWAs –including the updated market risk framework published in January 2016 –are collectively referred to as ‘Basel IV’ by the industry, in recognition of the scale of the changes they introduce. These include revisions to the RWA calculation for all Pillar 1 risk types, meaning that both standardised and internal risk types will be impacted.
Further changes were published regarding the leverage ratio buffer for G-SIBs, together with a discussion paper on the treatment of sovereign debt.

Read full paper

Contact us:
Manuel Plattner
Director
PwC Switzerland
+41 0 58 792 1482
manuel.plattner@ch.pwc.com

Executive Compensation & Corporate Governance Insights – Part 3

In this third and final part of this year’s ExCo Insights, we discuss new methods of pay design and communication with shareholders (and we clarify some misunderstandings regarding established “best” practices). Moreover, we recommend that board members and executives take a broad view of governance matters. We offer the following “Rethinks”:

1. Compensation design is fraught with “best practice” approaches that are actually often not appropriate. Companies should recognise the drawbacks of popular high-powered incentive systems with caps, should reflect on possible unintended side effects of the apparently intuitive use of “relative performance evaluation” (RPE, such as benchmarking to indices), should be wary of the risk-taking incentives of currently fashionable performance shares, and should consider using debt to complement standard equity-based incentives. Simplification – for example, granting straight-up shares rather than complex instruments such as performance shares – also has important advantages.

2. Ongoing communication with shareholders throughout the year, not just ahead of the Annual General Meeting (AGM), is essential to build trust and understanding regarding a company’s specific situation. This is particularly important given that a company also has to deal with powerful proxy advisors who sometimes use checklists and policies that management may regard as inadequate in the context of the concrete challenges a company needs to solve with incentive systems and governance choices.

3. We introduce the 5 Rs of value generation through effective governance: Recruit (select and retain the right board members, executives and employees), Reward (design and live incentives), Report (engage in value reporting and communication), Realise (execute value generation), and Rethink (reflect critically on practice of all four of the other Rs). An effective board has a holistic view of all of these matters. The weakest link of these five elements will determine the overall performance of the company.

Read the ExCo Insights 2017 – Part 3

We look forward to engaging in dialogue with you.

Dr. Robert Kuipers
Partner People & Organisation PwC
+41 58 792 45 30
robert.kuipers@ch.pwc.com

Remo Schmid
Partner People & Organisation, PwC
+41 58 792 46 08
remo.schmid@ch.pwc.com

Regulatory developments (TCFD)

Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD)

Context
The G20’s Financial Stability Board (FSB) Task Force on Climate-related Financial Disclosures (TCFD) was convened to address concerns that companies are not sufficiently disclosing the impacts that climate change poses to their strategy, businesses and financial plans. Without adequate disclosure markets cannot function efficiently and risks are not appropriately priced.

Broadly climate risks can be divided into:

  • Transition risks such as climate policy (e.g. a carbon tax) or technological shifts (e.g. the rise of electric vehicles) which impact demand and costs of supply; and
  • Physical risks such as the impacts of more frequent/extreme weather events on assets, operations or supply chains.

Scope
The TCFD’s recommendations were launched in June 2017 and presented to the G20 Summit on 7–8 July. The report’s scope covers all companies with listed equity/debt in the G20.

Additionally, to address where concentrations of risk might lie, the scope also includes asset managers and asset owners e.g. pension funds, so covering the whole investment chain. Shareholders and other capital providers are increasingly looking to understand the resiliency of the companies they are invested in or lend to. Major institutional investors have publicly called for companies to make disclosure of climate risks a priority or face shareholder action.

TCFD recommendations and implications
The TCFD structured its recommendations on climate-related disclosures around four thematic areas:

  • Governance: extent of board and senior management oversight on the issue;
  • Strategy: risks and impacts on strategy, business and forward looking scenario analysis;
  • Risk Management: how climate risks are identified, assessed, managed and integrated into existing risk management frameworks; and
  • Metrics and Targets: how is performance on climate risk being measured.

The TCFD recommends disclosure in mainstream annual reports. It is a major shift away from sustainability reports where climate issues typically currently reside. This means that functions such as Finance and Investor Relations as well as the Audit Committee need to understand the financial implications of climate change and be in a position to explain whether such implications are material and how this is being governed, managed and disclosed.

Strategy functions will also need to consider how to incorporate such implications into long term plans. The TCFD recommends that companies conduct forward-looking scenario analyses to understand how their businesses will be impacted by climate change.

Contacts

Stephan Hirschi
PwC ADV Consulting | Adv Consulting TIS
+41 58 792 2789
stephan.hirschi@ch.pwc.com

Raphael Rutishauser
ADV Consulting | Adv Consulting TIS
+41 58 792 52 15
raphael.rutishauser@ch.pwc.com

 

Pension reform “no vote”: no immediate impact, challenges remain

On 24 September 2017 the Swiss people and cantons rejected the proposed “AV2020” reform package. The reforms covered the 1st and 2nd pillar and were proposed by Government to increase financial stability in the system and maintain current pension levels in both pillars.

The “no vote”

Details of the rejected reforms can be found in our blog from earlier this year. The headline changes were to increase the “normal” retirement age of women from 64 to 65, increasing the earliest retirement age to 62 (with exceptions), as well as changing the pillar 2 contribution rates and minimum conversion rate to 6.0% from 6.8%. Transition arrangements were to be provided to over-45s.

Overall the changes did not get enough consensus from across the diverse political, geographical and demographic landscape of Switzerland. Campaigners for a “no” vote focused on disparities between generations with young portrayed as paying for older generations retirement. Some argued that the reforms did not go far enough. The vote and subsequent rejection shows the challenge of getting complex reforms passed through a national referendum.

What next? Potential impact of the no-vote

There are no immediate actions for employers from the “no” vote as plans do not need to be changed. But the long-term challenges that triggered the reforms remain and need to be managed:

De-risking even more important – as none of the proposed reforms come into force now, employers and funds do not need to change current plans. But the cost of retirement benefits and the risk around them continues to rise. We expect many funds to continue to face significant challenges from increasing longevity and lower (expected) asset returns, so additional measures and changes to manage benefits and risks are likely needed in the mid to long term.

Providers may reconsider providing (insured) minimum plans – the minimum guaranteed conversion rate of 6.8% remains expensive for multi-employer funds and fully insured plans to provide. Some funds will reconsider their approach and potentially pull out of providing pure legal minimum plans as the financing of such benefits becomes more and more challenging without cross-subsidies. Employers with mandatory minimum plans may find getting a provider increasingly tough.

No immediate IFRS/US GAAP pension accounting impact – companies with Swiss minimum plans or split solutions (e.g. mandatory and over-mandatory benefits are covered by different plans/funds) who report their pension obligation under international accounting standards will not “gain” from the law change as there are no automatic changes to mandatory minimum benefits.

The Swiss government will be working on a new package of reforms, but there is no timeframe for this as yet. Employers may not be able to wait and may need to review their plans now to ensure they are future proof and risks are managed.

Contact

Adrian Jones
Director, People and Organisation
Tel: +41 58 792 40 13
adrian.jones@ch.pwc.com

Richard Köppel
Pensionskassen-Experte SKPE, People and Organisation
Tel. +41 58 792 11 72
richard.koeppel@ch.pwc.com

Federal Act on Data Protection (FADP): Swiss Federal Council publishes Draft Bill

On September 15, 2017 the Swiss Federal Council published the draft bill to the revision of the Federal Act on Data Protection (FADP). The revised bill intends to strengthen the protection of personal data and to adapt the existing provisions to the digital age. Moreover, it aims at adapting Swiss data protection legislation to legislation at European level, i.e. the EU General Data Protection Regulation (GDPR). In this context, remaining recognized by the EU as a third country providing an adequate level of data protection is crucial for the Swiss economy.

Key Features of the Draft Bill and Differences to the EU-GDPR

The Federal Council answered the criticism of the Swiss business community by implementing extensive changes to the preliminary draft of the FADP, which it published in December 2016. In that regard, the Federal Council rejected a so called “Swiss finish”. The current draft bill does not exceed the EU standards stipulated in the EU data protection legislation with regard to key elements anymore.

Generally, the draft bill aims, as its counterpart in the EU, at generally increasing transparency in data processing as well as at enhancing data breach sanctions. Moreover, in different areas the draft adopts the relevant EU legal terminology. It also establishes a risk-based approach, e.g. the data protection duties of the data controller are expanded contingent to the privacy risks of the concerned data subjects. The revised FADP requires all data controllers and processors to keep records on their data processing activities, similar to the GDPR. Reflecting the same development as in the EU, the revised FADP strengthens the role and position of the Federal Data Protection and Information Commissioner (FDPIC).

However, in some areas the draft bill substantially differs from EU legislation. For example, it does not require data controllers to document FADP compliance. Thus, unlike the GDPR, it does not introduce a reversal of proof approach with regard to data protection. Specific provisions on the protection of children and the right to data portability have not been introduced to the draft bill either. With regard to the latter, the Federal Council wants to wait for the EU’s experience prior to taking similar steps. Comparable considerations apply to the “right to be forgotten”, which has been limited to personal data matters concerning deceased persons.

Further differences to the GDPR concern sanctions. The upper limit stated in the preliminary draft has been substantially reduced from CHF 500’000 to CHF 250’000 and thus is significantly lower than in the EU. In addition, data controllers in Switzerland are subject to less reporting and consultation obligations towards the FDPIC as their counterparties in the EU towards their data protection authorities.

Keeping the EU Adequacy Status

Keeping unrestricted access to the EU single market is an additional factor shaping the revision of the FADP. In that context, adapting to parts of the EU data protection legislation seems a precondition for Switzerland to remain recognized by the EU as a third country providing an adequate level of data protection and, thus, benefiting of cross-border data transfers absent of additional legal safeguards. This is particularly important to the Swiss economy.

Need for Action for Companies

The revision of the FADP will have a material and significant influence on how companies will process personal data in the future. Despite the differences to the GDPR and to the preliminary draft the intention of the recently published draft bill remains the same: Increased transparency and stronger sanctions for data breaches.

It is envisaged that the revision should be completed in the summer of 2018. We however strongly recommend that companies consider the upcoming data protection legislation already today. Companies operating in Switzerland should gain a complete and full view of their data processing. Following this analysis and in application of a risk-based approach, the necessary measures must be taken to ensure compliance of data processing with the future new law.

Contact us

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

Dr. Idir Laurent Khiar
Assistant Manager
Legal Compliance
+41 58 792 17 51
idir.laurent.khiar@ch.pwc.com