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

New Publication: Climate Change and the Insurance Industry

Taking Action as Risk Managers and Investors – Perspectives from C-level executives in the insurance industry

Over the last months we have been able to support Geneva Association on the development of the report ‘Climate Change and the Insurance Industry: Taking Action as Risk Managers and investors’ as a client engagement. We interviewed (and obtained written responses from) 62 group CEOs, CROs, CUOs and CIOs of 21 primary insurance and reinsurance companies. Please find the reporting below.

Read more

Contact

Patrick Maeder
Advisory Partner
maeder.patrick@ch.pwc.com

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Swiss CRS Updates – January 2018

During December 2017, the Swiss Federal Tax Administration (“Swiss FTA”) and the Swiss State Secretariat for International Financial Matters (“SIF”) provided important updates regarding the Automatic Exchange of Information on financial accounts (“AEOI”) under the OECD’s Common Reporting Standard (“CRS”). Upon the completion of ongoing parliamentary work, the SIF updated the list of jurisdictions and territories with which Switzerland has agreed to exchange information under the CRS. In addition to containing Switzerland’s AEOI partner jurisdictions, the list also includes additional information, such as the date of entry into force of the various CRS agreements as well as specific distinctions between the different partner jurisdictions. The updated list distinguishes between states that:

  • have not yet submitted their partner state notifications. The AEOI will thus be activated at a later date;
  • have declared themselves to be “permanent non-reciprocal jurisdictions”, i.e. they will supply account information to the partner states on a permanent basis but will not receive such data;
  • do not meet the requirements of the global AEOI standard at present and have postponed the introduction of the AEOI.

Please refer to the following links for the updated list of Switzerland’s AEOI partner jurisdictions in German / English.

In addition to the above-mentioned updates, the “Questions and Answers to CRS” on the Swiss FTA website and the OECD “FAQs” were also updated in December 2017.

Contact

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

Case study: Moving into the digital world in less than 60 days

 

The PwC experience from FRIDAY

The Berlin start-up FRIDAY is shaking up the automobile insurance market with a new type of platform for digital motor vehicle products. Working alongside PwC and US software developer Guidewire, the subsidiary of the Baloise group is capitalising on the momentum of the 4.0 era and making full use of its innovative capacities to produce a cloud-based core system.

 

Read more

 

Contact

Patrick Maeder
Advisory Partner
maeder.patrick@ch.pwc.com

 

Jürgen Schatz
Advisory Senior Manager
juergen.schatz@ch.pwc.com

Three approaches for insurers to address the IFRS 17 technology conundrum

As my colleague, Richard Hart alluded to in his November blog, we held our second IFRS 17 Technology Showcase in Zurich last week.

We similarly hosted a number of IFRS 17 Technology vendors to showcase their solutions and a number of insurance CFOs in a panel discussion. Indeed many of the themes that were discussed in London in November, were also discussed at our Zurich event.

However, the key difference was a bit more of a detailed discussion around what level of ambition insurance companies should aim for – what do you, as a board member at an insurance company, want to achieve as you adhere to the forthcoming accounting principle that is IFRS 17?

There are three possible options, depending on your level of ambition…

Compliance only – This approach is about identifying and implementing a pragmatic solution to make sure you’re compliant across all of the regions you operate in. It’s about using or extending existing capabilities with a minimum investment in terms of both time and resource.

Compliance plus – Here you can make targeted investments beyond what’s needed to achieve basic compliance where you can enjoy the tangible benefits with only a minimal increase in overall delivery risk.

Modernisation – This is where you use IFRS 17 as a catalyst to modernise and optimise your finance function. It’s about using the latest new technology such as workflow management, analytics, cloud and robotics to standardise and streamline your end-to-end finance processes and applications and focusing on delivering significant value back to the business.

Unfortunately there is no right answer for insurance companies. It’ll differ by company. Your choice of approach will obviously be driven by cost of implementation to a certain extent but also by your organisations’ ambition level, scope, size and complexity.

But, no matter which approach you take, it’ll still be important to maximise the changes you do make to deliver as much benefit as possible to your organisation.

If you’d like to discuss any of the themes we covered on the day or above then please do get in touch.

Patrick Mäder
EMEA Insurance Leader
PwC Switzerland

Sven Stark
IFRS17 Global Team Member, Transformation & Technology Driver
PwC Switzerland

Eva Dewor
EMEA Risk & Finance Transformation
PwC Germany

CRS Updates – December 2017

OECD Seeking Public Comments Regarding Mandatory Disclosure Model

On 11 December 2017, the Organisation for Economic Co-operation and Development (“OECD”) published a press release containing a mandatory disclosure consultation document which is open for comments from interested parties and stakeholders until 15 January 2018. Through the consultation document, the OECD is seeking input for a model requiring mandatory disclosure rules, and which ultimately intends to target promoters and service providers with a material involvement in the design, marketing or implementation of Common Reporting Standard (“CRS”) avoidance arrangements and offshore structures.

While tax transparency has significantly improved over the past decade, issues remain in regards to the widespread use of offshore structures to circumvent CRS reporting requirements, as highlighted by the release of both the “Panama” and “Paradise” papers. With the OECD’s proposed model, the rules would require intermediaries to disclose information on potential schemes to their local tax authority. Said information would then be made available to other tax authorities in accordance with the applicable information exchange agreement.

The OECD is now seeking public input from interested parties and stakeholders via the consultation document. The deadline for comments is 15 January 2018.

Please refer to the link for access to the OECD’s press release and consultation document.

Swiss CRS Update: Additional Agreements Approved by Chambers of Parliament

On 6 December 2017, the Swiss Parliament announced their approval of 41 additional partner jurisdictions starting on 1 January 2018 for the Automatic Exchange of Information (“AEOI”) under the CRS. After an initial rejection from one chamber of parliament, Saudi Arabia and New Zealand were also approved and are part of the 41 new partner jurisdictions. In addition to this announcement, the Swiss Parliament outlined strict and detailed requirement criteria for existing and potential Swiss partner jurisdictions. As part of this, the Swiss Federal Council will evaluate whether Swiss partner jurisdictions are compliant with the OECD CRS before Switzerland will exchange any information or data with them. The results of said testing will be communicated to the chambers of parliament.

Please refer to the link for additional details regarding the Swiss Parliament and Federal Council’s AEOI-related decisions.

Additionally, please refer to the link for a list of Switzerland’s current AEOI partner jurisdictions.

Contact

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

FINMA Published New Circular “Outsourcing – Banks and Insurers”

On December 5, 2017 the Swiss Financial Market Supervisory Authority (“FINMA”) published its Circular 2018/03 “Outsourcing – banks and insurers”, which introduces changes for banks and covers for the first time also insurance companies The revised outsourcing circular will enter into force on 1 April 2018.

Principle-based regulation

With the revised outsourcing circular, FINMA uses a principle-based and technology-neutral approach. Accordingly, banks, securities dealers and insurers can implement the requirements for outsourcing in such a way that their specific business models and risks are taken into account.

FINMA in particular requires financial institutions to take the higher risks resulting from the outsourcing of activities outside of Switzerland into account. In this regard, financial institutions must guarantee company restructuring and resolution in Switzerland.

Issues raised by market participants

FINMA took on the following key suggestions from banks, securities dealers, insurance companies and directly affected companies during the consultation process and implemented them as follows in the revised outsourcing circular:

  • It defined the materiality of outsourcing projects in a more principle-oriented way and, thus, strengthened the institutions’ independent self-assessment;
  • clarified the rules governing the outsourcing of risk management and compliance functions;
  • allowed for principle-oriented treatment of intra-group outsourcing;
  • deliberately refrained from regulating special implementing provisions for systemically important banks; and
  • extended the transition period for adjustments to existing outsourcing arrangements for banks from two to five years. In the case of insurers, the revised outsourcing circular will apply from the date of entry into force to all new licensed businesses as well as in the event of business plan changes.

Contact Us 

Günther Dobrauz
Partner
Leader PwC Legal Switzerland
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Tina Balzli
Director
Head Banking, Legal FS Regulatory & Compliance Services
+41 58 792 15 54
tina.balzli@ch.pwc.com

Jean-Claude Spillmann
Senior Manager
Legal FS Regulatory & Compliance Services
+41 58 792 43 94
jean-claude.spillmann@ch.pwc.com

Stephanie Kok
Manager
Legal FS Regulatory & Compliance Services
+41 58 792 48 94
stephanie.kok@ch.pwc.com

Michaela Brunnhofer
Manager
Legal FS Regulatory & Compliance Services
+41 58 792 47 94
michaela.brunnhofer@ch.pwc.com

Latest Level 3 ESMA Q & As related to MiFID II/MiFIR

ESMA published and updated in the last couple of days additional Level 3 Q&A papers. Due to the specification and clarification purposes of the Level 3 papers, this should help you during the implementation phase and could clarify open questions. Please find the newly updated Q&As from November 10th, November 14th and November 15th 2017 below.

PwC provides you with this Newsletter an overview of the latest questions related to:

1. Record keeping
2. Post-sale reporting
3. Inducements
4. Transaction reporting
5. Direct electronic access (DEA) and algorithmic trading
6. The tick size regime
7. Multilateral and bilateral systems
8. General Q&As on transparency topics
9. Equity transparency
10. Non-equity transparency
11. Pre-trade transparency waivers
12. The systematic internaliser regime
13. Data reporting services providers
14. Third country issues

 

Read the full article

 

We are happy to discuss with you any thoughts and issues you may have. We are also happy to review your solutions with regard to MiFID II and MiFIR.

Please do not hesitate to contact us.

Guenther Dobrauz
Partner
Leader PwC Legal FS Regulatory and
Compliance Services
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager
PwC Legal FS Regulatory and
Compliance Services
+41 58 792 10 87
michael.taschner@ch.pwc.com

Orkan Sahin
Assistant Manager
PwC Legal FS Regulatory and
Compliance Services
+41 58 792 19 94
orkan.sahin@ch.pwc.com