Don’t be caught out by DAC6

The EU is introducing radical measures to tackle tax abuse and ensure fairer taxation by increasing the level of transparency another notch in order to detect potentially aggressive tax arrangements.

The amendment to Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC6 for short) will have far-reaching consequences for tax advisors, service providers and taxpayers – including organisations and individuals in Switzerland.

DAC6 imposes mandatory disclosure requirements for arrangements with an EU cross-border element where the arrangements fall within certain “hallmarks” mentioned in the directive and in certain instances where the main or expected benefit of the arrangement is a tax advantage. There will be a mandatory automatic exchange of information on such reportable cross-border schemes via the Common Communication Network (CCN) which will be set-up by the EU.

Although the directive is not effective until 1 July 2020, taxpayers and intermediaries need to monitor their cross-border arrangements already as of May 2018. Therefore the time to act is now.

DAC6 in a nutshell

Who? Intermediaries such as tax advisors, accountants, banks and lawyers, who design, market, organise, make available for implementation or manage the implementation of potentially aggressive tax-planning schemes with an EU cross-border element for their clients as well as those who provide assistance and advice

What? Mandatory reporting by tax intermediaries (or taxpayers) and the automatic exchange of information by the tax authorities of EU member states via the Common Communication Network (CCN) for a wide range of cross-border arrangements in relation to individuals and entities.

Why? The main purpose of DAC6 is to strengthen tax transparency and fight against aggressive tax planning. It broadly reflects the elements of action 12 of the BEPS project on the mandatory disclosure of potentially aggressive tax-planning arrangements.

How? The potentially aggressive tax planning arrangements with a cross-border element need to be reported by the intermediaries to the tax authorities in the country in which they are resident. The EU member states then will share the information with all other member states via the Common Communication Network (CCN) on a quarterly basis.
If the taxpayer develops the arrangement in-house, or is advised by a non-EU adviser, or if legal professional privilege applies, the taxpayer must notify the tax authorities directly.

Penalties will be imposed on intermediaries that do not comply with the transparency measures. EU member states to implement effective, proportionate and dissuasive penalties.

Find out more about DAC6 and if you are affected online and get in contact with our experts.

Contacts

Monica Cohen-Dumani
Partner
+41 58 792 97 18
monica.cohen.dumani@ch.pwc.com

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

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.

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

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

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

Easily abused substance: How much substance does an entity need in order to be taxed in a particular country?

Setting up an entity through which an active business is conducted, or an interest other entities is held, is well understood and common. However, the world keeps on changing. As countries scramble to protect and enlarge their tax revenue base they are taking a fresh look at taxing entities, especially foreign ones. Much turns on the question of where an entity has its true substance.

The tax residence of an entity does not necessarily match the place where it is formally registered or incorporated. Some countries may claim that the entity is tax resident in their country if it is centrally managed and controlled from there. At issue is the highest level of decision making of the entity and not, for example, mere operational control. Factors to be considered include identifying the effective and economic centre of the entity’s existence and the place where the essential decisions of the entity are taken.

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Contact us

Andri Manatschal
Partner
+41 58 792 43 18
andri.manatschal@ch.pwc.com

Albrecht Herholdt
Senior Manager
+41 58 792 25 76
albrecht.herholdt@ch.pwc.com

EU – Register of beneficial owners

Under the 4th anti-money laundering directive of the European Union, all European countries are obliged to introduce legislation that will create a register of the ultimate beneficial owners (UBOs) of structures. Who qualifies as a UBO? What information will be collected? Who will have access to the data?

The 4th Anti-Money Laundering directive entered into force on 26 June 2017. Each member state should by now have transposed the directive into their national law. What follows is a discussion of the provisions of the directive itself at EU level.

To read more about the discussion, please click below.

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Contact Us

Marcel Widrig
Partner | Leader Private Wealth Services Switzerland
+41 58 792 44 50
marcel.widrig@ch.pwc.com

Albrecht Herholdt
Senior Manager | Tax & Legal Services: International Private Wealth & Entrepreneurs
+41 79 278 72 38
albrecht.herholdt@ch.pwc.com