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

21st CEO Survey: Key findings from the Asset and Wealth Management industry

Optimistic CEOS and buoyant growth, yet disruption looms

There’s great confidence in the asset and wealth management (AWM) industry, but also acknowledgement that times are changing. While CEOs are optimistic about growth, they’re aware that they face challenges, although perhaps not the full extent of them. Those are the inescapable conclusions of PwC’s 21st CEO Survey in which 126 of the sector’s CEOs were interviewed.

While AWM CEOs are optimistic about revenue growth in 2018, they also report seeing a myriad of challenges. This contrast begs the question: Will the extent of potential disruption outpace the time needed to prepare for and react to it?

Accelerating technological change, more demanding customers, embedding the blizzard of new regulation – these powerful forces will transform, and perhaps terminate, some of the sector’s traditional ways of operating. The survey’s findings echo the recent report, “Asset & Wealth Management Revolution: Embracing Exponential Change,” which estimates that by 2025 global assets under management will have almost doubled – rising from US$84.9 trillion in 2016 to US$145.4 trillion.

Yet certain AWM CEOs seem to underestimate the widespread industry reinvention under way, with major changes to fees, products, distribution, regulation, technology, and people skills, and how a failure to properly navigate these changes may cut into assets under management and eventual profits. Perhaps this is due to the disparate nature of the sector. It ranges from global giants to active and alternative investment boutiques. Many AWM participants in PwC’s 21st CEO Survey lead relatively small shops, reflecting the entrepreneurial nature of the industry.

Read the full study

Contact

Jean-Sébastien Lassonde
PwC | Partner, Swiss Leader Asset & Wealth Management
Office: +41 58 792 81 46 | Mobile: 41 79 598 57 38
Email: jean.sebastien.lassonde@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

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

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

IRS Announcements regarding QI Certifications

On 22 February 2018, the Internal Revenue Service (“IRS”) announced that the QI/WP/WT application and account management system will be open to accept QI/WP/WT certifications beginning in early April.

Additionally, the IRS announced extended deadlines for the certifications as follows:

  • For QIs that choose 2015 or 2016 for the periodic review, the IRS will permit an extension of the original deadline from 1 July 2018 to 1 September 2018
  • For QIs that qualify for a waiver from the periodic review, the IRS will permit an extension of the original deadline from 1 July 2018 to 1 September 2018
  • For QIs that choose 2017 for the periodic review, the IRS will permit an extension of the original deadline from 31 December 2018 to 1 March 2019

All QIs/WPs/WTs will receive an announcement on their message board that the QI/WP/WT account management system will open in early April.

FAQs are available on the IRS website to support users in managing the system.

Contact

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

OECD Releases New CRS Anti-Avoidance Consultation Document

On 19 February 2018, the Organisation for Economic Co-operation and Development (“OECD”) released a consultation document on the misuse of residence by investment schemes to circumvent the OECD Common Reporting Standard (“CRS”). As an increasing number of jurisdictions are offering so-called “residence by investment” (“RBI”) or “citizenship by investment” (“CBI”) schemes, the OECD is seeking public input to obtain further evidence on the misuse of such RBI/CBI schemes.

The OECD’s consultation document aims to:

  1. assess how RBI/CBI schemes are used to circumvent the CRS;
  2. identify the types of schemes that present a high risk of abuse;
  3. remind stakeholders of the importance of correctly applying relevant CRS due diligence procedures to aid in avoiding such abuse; and,
  4. explain the next steps the OECD plans to undertake to further address this issue.

The OECD will take public input into account in order to determine how to best proceed with the RBI/CBI schemes issue. Parties interested in providing input have until 19 March 2018 to email their comments to the OECD. All comments must be sent to CRS.Consultation@oecd.org and addressed to the International Co-operation and Tax Administration Division.

Please refer to the following link for access to the OECD’s consultation document.

Far-reaching consequences of disruptive innovations for the Liechtenstein financial market

The Liechtenstein financial market has demonstrated its ability to adapt in recent years by keeping pace with changing framework conditions. Financial industry stakeholders manage more assets today than before the outbreak of the financial crisis. Liechtenstein remains as attractive as ever as a location for private banking and wealth management. The Principality of Liechtenstein is not the only country in which the financial sector is undergoing fundamental change. Digitisation is the main driver of this transformation, and banks are the hardest hit. More and more so-called “digital disruptors” are offering banking services without actually choosing to adopt a banking model themselves.

The challenge of digitisation

Customer behaviour and expectations have evolved. New competitors (e.g. FinTechs) and new technologies (e.g. blockchain) are provoking a fundamental shift in the business model of banks. Digitisation offers new opportunities, but also generates risks. Traditionally structured banks operate an integrated business. They sell products that they have developed themselves via their own distribution channels. All transaction and support services are provided internally. In contrast, new technologies enable a high degree of standardisation to be achieved, leading to a fragmentation of the value chain. According to the PwC Global FinTech Report 2017, 82% of the study participants questioned want to enter into partnerships with FinTech companies within the next three to five years. 77% expect blockchain technology to have become a part of their company’s productive system environment by 2020. Banks in Liechtenstein will not be able to escape this development. They need to carefully analyse the strategic options for action before putting appropriate measures into practice.

Attractive framework conditions

The government is supporting technological change by means of its “Impuls Liechtenstein” programme and the “Regulatory Laboratory” set up within the Financial Market Authority Liechtenstein (FMA). The FMA pursues a forward-looking regulation policy in line with European law. The team of experts from the Regulatory Laboratory advises financial intermediaries at the interface between regulations and the market. At statutory level, modifications have been made to banking legislation which permit the needs-based approval of service providers. Furthermore, there are specific statutory provisions applicable to payment and electronic money institutions. In addition, service providers and organisations benefit from private initiatives which help to establish extensive networking within the FinTech industry in Liechtenstein.

Healthy prospects

There are healthy prospects for overcoming the technological transformation. Liechtenstein as a financial centre has significant expertise in the field of finance, responds rapidly thanks to its short decision-making channels, and is capable of implementing practical solutions. This creates stability and legal certainty. These are good basic conditions to ensure its continued survival in a competitive environment in such fast-moving times. In the future, financial intermediaries will however be required to prove their ability to adapt more than ever before.

Contact

Martin_Meyer_09723
Claudio Tettamanti
PwC | Partner | Market Leader Liechtenstein
Office: +423 233 10 02
Mobile: +41 79 696 45 89
Email
PricewaterhouseCoopers GmbH
Austrasse 52 | Postfach | FL-9490 Vaduz

U.S. tax reform includes important information reporting and withholding changes

The 2017 tax reform and reconciliation act (the Act), enacted on December 22, 2017, makes important changes to information reporting and withholding tax rules, including:

  • A change in the backup withholding rate from 28% to 24%;
  • A new federal tax withholding requirement relating to certain transfers of partnership interests;
  • New reporting requirements relating to:
    • the sale of certain life insurance contracts, and
    • the receipt of fines, penalties, and other amounts from certain taxpayers; and
  • Changes to various non-payroll withholding tax rates that are tied to individual and corporate income tax rates.

Observations: Taxpayers may need to implement changes immediately to their policies and procedures to conform to the new rules. Also, taxpayers reorganizing or restructuring in light of US tax reform should consider the impact the tax reform changes have on their tax withholding and reporting profile. Restructuring could cause changes in the source of income being paid or the status of a taxpayer (e.g., from non-US payor to US payor, or vice versa). Taxpayers should determine whether they are subject to new or additional tax withholding or information reporting obligations as a result of restructuring efforts due to US tax reform.

For more information on these updates, please see our recently published Tax Insight.

EU and the OECD considering TRACE / withholding tax simplification

On 30 January 2018, the European Commission held a public session to discuss the code of conduct issued by the Commission in late 2017 regarding increasing the efficiency of withholding tax (“WHT”) procedures. The code of conduct contains a list of measures for E.U. Member States to consider in terms of simplifying WHT procedures as regarding cross border income such as dividends, interest, and royalties. The code is a non-binding document which allows for voluntary commitment by E.U. Member States.

The measures considered includes, inter alia, (1) increased digitalization of WHT procedures, (2) provisions of refunds in a short period, and (3) relief at source. The tax relief at source suggestion includes the use of “authorized information agents and withholding agents” to facilitate the verification of entitlement to treaty relief, provision of pooled withholding tax rate information, and reporting of relevant information.

Such a tax relief at source solution resembles the OECD’s Treaty Relief and Compliance Enhancement (“TRACE”) project which started in 2009. TRACE envisages the use of Authorised Intermediaries to facilitate a more efficient and simpler application of treaty relief on cross border investments in a similar manner to the U.S. Qualified Intermediary regime. Although TRACE has not been implemented in any country as of yet, we understand that it may be reactivated soon especially given the work done at European Commission level in terms of the WHT topic.

Please refer to the following link for access to the European Commission Code of Conduct.

Contact

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