Revised rules on tax at source to enter into force on 1 January 2021

On 15 December 2016, parliament finally passed amendments to the rules on taxation at source in the form of the federal act on the revision of taxation of earned income at source. On 11 April 2018, the Swiss Federal Council passed the Federal Department of Finance’s fully amended ordinance on taxation at source. Both sets of rules enter into force on 1 January 2021.

The ordinance on taxation at source concretises the new law. It contains hardly any surprises compared against the consultation, concluded in December 2017. Anyone subject to tax at source who is resident in Switzerland must, as previously (in most cantons), file a tax return if their income exceeds the threshold of CHF 120,000 (retrospective ordinary assessment). Anyone else in Switzerland with a lower income can apply to do so voluntarily.

Application in cases of quasi-residence

People resident abroad can only apply to file a tax return if they are quasi-resident in other words if 90 per cent of their global income is taxed in Switzerland. Recent court rulings relativise this figure of 90 per cent, which also means the procedure changes for people with quasi-resident status applying to file a return. They must make the application before the prescribed deadline (31 March of the following year). However, the decision is made on the basis of the tax return submitted.

The most important changes in brief

» Tariffs

Tariff D (secondary employment) is being abolished as part of the tax at source procedure on data privacy grounds. This means that all employers of a person subject to tax at source who has more than one position as an employee have to levy tax at source at the regular tariff. The regular tariff is converted to 100 per cent of the income, or 180 hours per month.  The abolition of tariff D also entails the disappearance of tariff O for German cross-border commuters.

However, tariff D will not disappear completely, but will now be used in special cases: for the refund of AHV/AVS contributions (at least one year) if an employee emigrates permanently to a country with which Switzerland does not have a social insurance agreement. In other words this tariff (D) will no longer be used by employers; only by the social security authorities. Employers will likewise not be using the new G and Q tariffs. The persons subject to tax at source drawing replacement income from the insurer, set down in section 2 of tariff D, will now be handled under tariff G. Replacement income is benefits paid directly to the person taxable at source rather than via the employer. In the same situation Tariff Q relates to Germans who have cross-border commuter status.

» Greater onus on employees

The onus is explicitly placed on employees, who must now report new circumstances (e.g. changes in marital status, the birth of children, partner taking up/leaving employment, etc.) to their employer. This is absolutely necessary for the employer to be able to calculate and levy the correct tax at source. Nevertheless, employers will have to inform their employees of this and make them aware of this obligation.

» Further concretisation anticipated

The revised legislation also entails amendments to other ordinances, including the ordinance on expatriates (ExpaV/Oexpa), most of them editorial in nature.

The actual implementation of retrospective ordinary assessments is left very open, with the cantons given considerable room for manoeuvre when it comes to applying these rules. The anticipated circular should create clarity in this respect, as well as containing numerous concrete details of uniform calculation methods for all cantons. Only this way can the amended rules on taxation at source really simplify life for employers.

Contact Us

Brigitte Zulauf
TLS Partner
Leader Corporate Support Services Switzerland, Zurich
+41 58 792 47 50
brigitte.zulauf@ch.pwc.com

Circular letter 13 on securities lending and repo transactions

Amendments to preclude dividend stripping transactions (applicable as of 1 January 2018)

On Friday 29 December 2017 the Federal Tax Administration (FTA) issued a revised version of Circular Letter 13 on securities lending and repo transactions. The amended circular letter contains important changes to the previous practice of the FTA, notably with regard to the Swiss Withholding Tax (WHT) refund position of foreign resident borrowers of Swiss securities.

The issue:

Under the previous circular letter issued in September 2006, Swiss and foreign borrowers of Swiss securities receiving a dividend or interest payment were able to claim for a full or partial refund of WHT levied at a rate of 35% either on the basis of Swiss domestic law in case of Swiss borrowers or on the basis of an applicable double tax treaty.

This rule was perceived by the FTA as a cause of a market behaviour, which was not intended. Indeed, the old practice was intended by the FTA as a pragmatic approach to solve situations where a borrower had “over-borrowed” a position over the dividend ex-date. From the FTA’’s perspective, the old practice was, however, being abused deliberately by lending Swiss securities to foreign borrowers over the dividend ex-date, which in several cases led to perceived dividend stripping cases.

The impact for foreign borrowers:

As of 1 January 2018, the old practice, which generally provided for the possibility of refunding WHT to foreign borrowers of Swiss securities, is no longer applicable, irrespective of whether the transaction is a long borrowing transaction (i.e. the borrower or the last borrower in a chain of several borrowers keeps the share) or if the shares sourced under a securities lending transaction are sold or delivered to a third party (e.g. to cover delivery obligations from a short sale).

The new rules stipulate that a WHT refund in case of long borrowing (including in chain transactions where the last borrower keeps the shares) can only be claimed by the original lender. The original lender is, in our view, to be understood as the party that held the long position and that initiated the first transfer of the Swiss securities under a securities lending transaction. Further to this rule and as only the original lender can claim for a refund, he will receive a compensatory payment of 65% of the income payment subject to WHT. In order to be in the position to claim a refund of WHT under an applicable double tax treaty, the new circular letter introduces a new requirement, which is that the original lender can prove that the payment received from the borrower is effectively the original dividend. Although the circular letter does not further define this proof, it is the common understanding that this burden of proof can only be fulfilled if the borrower (or, in case of chain transactions, the ultimate borrower) provides the lender with the original dividend payment advice received by the borrower. Under this procedure, the borrower would no longer dispose of the original dividend payment advice enabling him to make a refund claim; instead, only the original lender now holding the original dividend payment advice would have this opportunity. This new procedure also requires the whole chain of the lending transactions to be disclosed, which may be a difficult task.

In transactions where the foreign borrower has sold or delivered the Swiss securities sourced via securities lending to a third party, e.g. to cover a short sale, the circular letter precludes both the original lender as well as the borrower from filing a claim for a Swiss WHT refund. In such circumstances only the final buyer of the shares shall be seen as entitled to a Swiss WHT refund under the applicable double tax treaty. This new practice may put the lender in a difficult situation, notably in chain transactions where his borrowing counterparty becomes lender to a subsequent securities lending transaction without his knowledge, as the original lender may no longer have control over whether his shares remain in the securities lending chain (resulting in a long borrowing situation for the final borrower) or if the shares are sold by the final borrower to a third party. In the first case, the lender may file for a refund claim, assuming that he is provided with the original payment advice by the final borrower (or through the chain of borrowers); in the second case no such dividend payment advice should be available, as the third party would have this document and the entitlement to a refund claim. Lenders should therefore review their contractual arrangements to either preclude delivery of lent shares to third parties in order to ensure their own right to file a refund claim.

The takeaway:

The old practice of Circular Letter 13 applying to foreign resident borrowers has been changed. Under the new practice, the right to claim a WHT refund would lie with the original lender to the extent that the borrower (or the last borrower in a chain of securities lending transactions) held a long position on dividend day, the whole lending chain was disclosed and the lender proved that he had received the original dividend payment from the borrower. If the securities were sold or delivered to a third party by the borrower, only the third party would be entitled to file a claim for a WHT refund, with no possibility for the original lender or the borrower to do so.

It is worth noting that the old rules have not changed in cases where the borrower is resident in Switzerland, as the borrower has to levy a second WHT on any manufactured payment he makes to a lender in order to be in the position to claim the WHT levied on the original dividend payment received. In addition, the circular letter also contains amended rules with regard to the Swiss individual and corporate income tax treatment of the different income flows resulting from securities lending transactions, including a general corporate income tax anti-abuse clause in connection with participation relief.

Do not hesitate to contact us, should you wish to further discuss.

Contact Us

Luca Poggioli
Director, Corporate Tax
luca.poggioli@ch.pwc.com
+41 58 792 44 51

Victor Meyer
Partner, Tax & Legal
victor.meyer@ch.pwc.com
+41 58 792 43 40

Martin Büeler
Partner, Tax & Legal
martin.bueeler@ch.pwc.com
+41 58 792 43 92

Sandra Barke-Baumgartner
Partner, Tax & Legal
sandra.barke.baumgartner@ch.pwc.com
+41 58 792 94 34

EMEA Webcast: How US Tax Reform impacts European Multinationals

Monday, 27 November 2017, 4.00 – 5.00 pm CET

As you may be aware, on 9 November 2017 the House Ways and Means Committee approved by party-line vote of 24 to 16 the ‘Tax Cuts and Jobs Act of 2017’ (HR 1) bill. On the same day, the Senate Finance Committee released a description of their proposals.

Both the HR 1 bill and Senate proposals call for lower business and individual tax rates and modernize the US international tax rules, with significant impacts on numerous sectors of the economy.

In this webcast PwC specialists will provide an update on the provisions, the latest on potential timing, and have a discussion on the practical implications of the US Tax Reform on non-US based multinationals.

Speakers for this webcast will include:

  • Monica Cohen-Dumani – Partner, International tax services, Central Cluster ITS Leader – PwC Switzerland
  • Tom Patten – US Tax Partner, PwC UK
  • Bernard Moens – US International Inbound Tax Services Leader, PwC New York
  • Christopher P. Kong – US Inbound Tax Leader, PwC
  • Scott McCandless – US Federal Tax Policy Services Partner

To register for the WebEx Session: Click Here 

Contact Us

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

Stefan Schmid
TLS Partner
+41 58 792 44 82
stefan.schmid@ch.pwc.com

Martina Walt
TLS Partner
+41 58 792 68 84
martina.walt@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.

Read full attachment

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

Calibrate your tax compass

Tax Forum 2017

The right navigation instruments can help you reach your destination quickly and safely. Our tax pilots at the Tax Forum 2017 will guide you clear of the shallows and help you steer a course for your business targets.

Below you’ll find details of all the speakers, dates and venues. In Geneva and Zurich we’ll also be venturing into international waters and plumbing the depths of the US tax reform and Brexit.

Tap into the insights and experience of our experts and keep moving ahead. We look forward to seeing you at the Tax Forum 2017!

Here you’ll find various dates and venues to choose from.

Worldwide Tax Summaries – Corporate Taxes 2017/2018

We are delighted to inform you that the 2017/2018 edition of PwC’s Worldwide Tax Summaries on Corporate Taxes is now available online.

The new eBook (ePub and iBook formats) can be found at www.pwc.com/taxsummaries/ebook for use on most digital devices (e.g. desktops, laptops, tablets, smartphones). To view an ePub on your device, please ensure you have an app installed that can read the ePub format. Compatible apps should be available in your device’s app market or app store.

It is further worth noting that the fully mobile Worldwide Tax Summaries website, which is kept current throughout the year and covers corporate and individual taxes in over 150 countries, including quick charts, can be found at www.pwc.com/taxsummaries.

Are you interested in other information and news?

PwC has a lot to share with you, in the form of tax alerts, breaking tax news, newsletters, etc.

However, to make sure you only get what you want respectively your personalised news, we ask you to make your choices on the following PwC links (German, English, or French).

DE – http://newsletter.pwc.ch/inxmail9/pwc_subscription_de.jsp?lang=de

EN – http://newsletter.pwc.ch/inxmail9/pwc_subscription_en.jsp?lang=en

FR – http://newsletter.pwc.ch/inxmail9/pwc_subscription_fr.jsp?lang=fr

Navigating change – the UK tax environment

Banks and their clients have a short time period to react to the significant changes being introduced to the taxation of UK Resident Non-Domiciled (UKRNDs). These changes are being introduced against a sea change in the industry. So what are the key things to be talking about to your clients? How can you adapt to these changes in a commercial and pragmatic way? And what actions should you and your clients be considering – both pre 5 April 2017 and over the longer term?

Watch the recording of our webcast where Alison Hill, Peter Houghton and Lisa Cornwell from PwC UK take a deeper look in to the UK tax environment, allowing you to navigate through the upcoming changes.

Youtube link to the recording

Contacts

Alison Hill,
Director, Private Client Solutions, PwC UK
alison.hill@uk.pwc.com

Lisa Cornwell,
Director, Private Client Solutions, PwC UK
lisa.cornwell@pwc.com

Peter Houghton,
Senior Manager, Private Client Solutions, PwC UK
peter.houghton@uk.pwc.com

Revision of taxation at source passed

On 15 December 2016 Parliament accepted the revision of the rules on the taxation at source of employment income and passed the final wording of the law. From what we know at present, a realistic assumption is that the law will enter into force on 1 January 2020. The revision became necessary after a number of Federal Court decisions revealed that the existing rules had shortcomings and contradicted the freedom of movement with the EU.

The uniform procedure for subsequent ordinary assessments foreseen in the revised law will close the gap between individuals subject to tax at source and those subject to ordinary taxation, and make them more comparable. The revision involves corrections rather than fundamental changes to taxation at source. However, it does leave gaps and a lack of clarity on certain points. Many of the provisions still have to be defined in detail by the FTA and the cantons. This shows just how complex the matter is, but at the same time creates an opportunity to govern taxation at source more precisely and clarify the situation regarding taxpayers and parties liable for remitting the tax. It will be easier to adapt the upcoming implementing ordinances and circulars to take account of the relevant social developments. It is to be hoped that the authorities responsible will also continue to use these ordinances and circulars as an opportunity to modernise taxation at source. The first drafts are likely to be available from mid- 2017.

Read more here.

Greece introduces Voluntary Disclosure Programme

On 21 December 2016 a Voluntary Disclosure Programme (VDP) for undeclared income of previous years has been introduced in Greece through Law 4446/2016 (for prior coverage please refer to our blog). The VDP applies to both individuals and legal entities and requires the filing of standard tax returns for all non-declared tax objects. The application of the VDP ensures in principle that no other administrative and/or criminal penalties would be imposed to the taxpayer regarding the tax infringements restored by the VDP.

A decision of the General Secretary of State is still required to be issued for clarifying procedural and practical matters. Please read the analytical Newsalert from PwC Athens.

PwC has a specially dedicated team of experts dealing with the above voluntary disclosure allowing for a swift and cost efficient processing.

For more details, please contact:

Dr.Marcel Widrig
PwC, Partner
marcel.widrig@ch.pwc.com
Anna-Maria Widrig Giallouraki
PwC, Senior Manager
anna-maria.widrig.giallouraki@ch.pwc.com
Thomas Grossen
PwC, Assistant
thomas.grossen@ch.pwc.com