QI Account Management System Open for QI Certifications

On 4 May 2018, the Internal Revenue Service (“IRS”) updated the QI account management system and is now officially accepting QI, Withholding Partnerships (“WP”), and Withholding Trusts (“WT”) Certifications. Additionally, the IRS has announced that all QIs, WPs, and WTs must select the Periodic Review year of their certification before 1 September 2018. Please note that this deadline is also applicable for QIs, WPs, and WTs that have selected 2017 as their Periodic Review year.

Details to QI/WP/WT Periodic Review Waiver Applications

The IRS included details about Periodic Review waiver applications in its announcements, stating that all QIs, WPs, and WTs that wish to apply for a waiver must select 2015 as their Periodic Review year, complete Parts I – III of the certification, and submit its waiver application before the 1 September 2018 deadline. If the waiver application is accepted by the IRS, the QI, WP, or WT is not required to perform the Periodic Review. The acceptance or denial of a waiver application will be communicated by the IRS. If a waiver application is denied with less than six months remaining (including extensions) for the QI/WP/WT certification, then the QI, WP, or WT will be granted an additional six-month extension from the date of the waiver application denial, allowing for sufficient time to conduct the Periodic Review and resubmit a certification. Please note that if a QI/WP/WT has had its waiver application denied, the Periodic Review year is 2015. If such a QI/WP/WT wishes to select another year for the Periodic Review, the IRS FI team should be contacted at lbi.fi.qiwpissues@irs.gov. Once the Periodic Review is conducted post waiver denial, the resubmitted certification should include Parts IV and VI (if applicable).

Additional Information

The IRS has updated its certification and Periodic Reviews FAQs. Please refer to this link for access to the current FAQs.

Additionally, QIs, WPs, and WTs should consult Publication 5262 (the QI User Guide) before beginning their certifications, if needed. Publication 5262 can be accessed under this link.

Contact

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

Social insurance: updates to the guides issued by the authorities

The guides issued by the Federal Social Insurance Office (FSIO) are daily tools of the trade for people in payroll accounting. Their practical relevance stems above all from the fact that they are up to date and give clear guidance applicable to specific situations and circumstances. The FSIO has updated the guides again in 2018.

Two documents are key for people working in payroll accounting: the WVP/DAA (Wegleitung über die Versicherungspflicht in der AHV/IV), which contains guidance on the AHV/AVS and IV/IS insurance requirements, and the WML/DSD (Wegleitung über den massgebenden Lohn), a guide to the pay applicable for social insurance purposes. The WVP/DAA helps you work out whether there are factors in a particular case suggesting that the person is subject to social insurance in Switzerland. The WML/DSD addresses non-cash employee benefits and clarifies the question of whether and to what extent these benefits are subject to AHV/AVS contributions. Below we summarise the changes that are of most importance in terms of your payroll accounting.

Changes in compulsory social insurance

The updated WVP/DAA takes account of the entry into force on 19 June 2017 of the social insurance agreement with China. This agreement does not cover the special administrative regions Hong Kong, Macao and Taiwan. Given that it only governs the applicable provisions of the law and does not provide for the export of pension benefits, it is deemed to be a bilateral agreement on the secondment of staff.

The biggest change in terms of compulsory social insurance is the use, since 1 January 2018, of the Applicable Legislation Platform Switzerland (ALPS). This online system facilitates communication with employers and the FSIO in connection with compulsory insurance (in particular applications for secondment or continuation of compulsory insurance, and reporting activity in two or more states). Following a pilot phase where various employers and social security authorities worked with ALPS, the system is now going live and must be used by all social security authorities.

The introduction of ALPS is covered in detail in the corresponding official notice (AHV/EL Mitteilung 402). The introduction of ALPS does not entail any changes to the WVP/DAA. The notice also explains various issues in the event of activity in more than one state, for example calculating the materiality limit.

Changes in assessing contributions

The latest edition of the WML/DSD no longer contains rules relating to the demarcation of responsibilities between the AHV/AVS authorities and SUVA when it comes to assessing the status of commercial travellers and contractors (self-employed versus employed status). This is because there is no legal basis. A series of margin numbers have been removed (numbers 1033, 4019, 4033-4044, and 4051-4055).

There are new arrangements governing the treatment for the purposes of contributions of WIR money paid to employees. These payments are subject to contributions in full without a discount. The WML/DSD also specifies that when WIR money is given to employees at a discount (analogous to REKA money), the difference between the value and the value at which it is purchased by the employee is, unlike REKA money, subject to contributions.

Margin number 3007 has once again been made slightly more concrete. Now it clearly specifies how an employer has to treat season tickets for public transport for contribution purposes. What has not changed is the vague formulation to the effect that a season ticket is subject to contributions if business travel is undertaken on 40 days. The question still remains as to whether 40 very short business trips justify the exemption as per margin number 3007. According to the current WML/DSD, the answer to this has to be in the affirmative.

A digression on the WBB/DP

Most HR managers are familiar with the WML/DSD and the WVP/DAA. By contrast, the main people working with the WBB/DP guide on collecting social security contributions (Wegleitung über den Bezug der Beiträge in der AHV, IV und EO) are the social security authorities that implement social insurance. It is therefore fairly rare for changes to the WBB/DP to have a direct impact on HR work within organisations.

However, one of the amendments contained in the latest edition of the WBB/DP (valid as of 1 January 2018) has explosive potential: now margin number 2035.1 on collecting unemployment insurance (ALV) contributions on retrospective salary payments has been added, and margin number 2035.3 has been augmented with an example. This is problematic. For one thing, none of the leading payroll software solutions can accommodate these rules at present. And for another, many specialists see the rule as contradictory and believe that the result of applying it is unacceptable.

Contact Us

Dominic Müller
Senior Manager and Specialist for Payroll & Employment Solutions
Tel. +41 58 792 2002
dominic.mueller@ch.pwc.com

21st CEO Survey: Key findings from the Insurance industry

Maintaining optimism while grappling with transformational changes

According to PwC’s 21st CEO Survey, insurance CEOs continue to report that theirs is one of the most disrupted industries. However, their outlook is increasingly positive. Half of insurance CEOs say that they believe global economic growth will improve over the next 12 months, up from only 19% in 2017. And more than 90% report that they are confident about their own organisations’ revenue prospects over the next three years (43% are very confident and 49% are somewhat confident).

Among the many reasons for the positive outlook is that the anticipated disruption from incoming competitors (e.g. InsurTech and digital platform players) hasn’t materialised to the extent that was feared. Indeed, partnership with new entrants rather than rivalry is the order of the day. Moreover, new risk mitigation opportunities – sensors and cyber assessments, for instance – are opening up.

But, having perhaps overestimated the impact of outside threats and short-term disruption in the past, could insurers now be underestimating the urgent need to become digitally-enabled, customer-focused organizations with flexible business and operating models?

Read the full study

 

Contacts

Immy Pandor
Insurance Sector Leader
PwC Switzerland
immy.pandor@ch.pwc.com

Patrick Maeder
Financial Services Leader
PwC Switzerland
maeder.patrick@ch.pwc.com

Jan Ellerbrock
Head of Insurance Management Consulting
PwC Switzerland
jan.ellerbrock@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

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

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.

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

OECD Publishes Public Comments on Mandatory Disclosure Model

On 18 January 2018, the Organisation for Economic Co-operation and Development (“OECD”) published the public comments on the discussion draft on Mandatory Disclosure Rules for Addressing OECD Common Reporting Standard (“CRS”) avoidance arrangements and offshore structures (“Discussion Draft”). The OECD had published the Discussion Draft on 11 December 2017, requesting comments from interested parties and stakeholders by 15 January 2018. The Discussion Draft outlined a proposed model requiring mandatory disclosure rules, which ultimately intends to target promoters and service providers with a material involvement in the design, marketing or implementation of CRS avoidance arrangements and opaque offshore structures.

The public comments on the Discussion Draft came from numerous sources, including all of the Big 4 firm networks. In terms of input from Swiss sources, the Swiss Banking Association, Swiss Association of Asset Managers, Association of Swiss Private Banks, and the Swiss Insurance Association all provided comments to the OECD. The general feedback highlights the potential practical difficulties in the application of the model, mainly due to retrospective application of rules and definitions that are too broad at present for practical application. As a next step, the OECD will take these comments into account and present a report on the topic to the G7 Finance Ministers in mid-2018.

Please refer to the link for access to the public comments on the OECD’s Discussion Draft.

Contact

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