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Overview over cantonal tax law developments of selected cantons (Fribourg, Geneva, Jura, Neuchâtel, Vaud and Valais)
 

Overview over cantonal tax law developments of selected cantons (Fribourg, Geneva, Jura, Neuchâtel, Vaud and Valais)

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Overview over cantonal tax law developments of selected cantons (Fribourg, Geneva, Jura, Neuchâtel, Vaud and Valais)

Overview over cantonal tax law developments of selected cantons (Fribourg, Geneva, Jura, Neuchâtel, Vaud and Valais)

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    Overview over cantonal tax law developments of selected cantons (Fribourg, Geneva, Jura, Neuchâtel, Vaud and Valais) Overview over cantonal tax law developments of selected cantons (Fribourg, Geneva, Jura, Neuchâtel, Vaud and Valais) Document Transcript

    • April 2011 Tax NewsTable of contents Editorial3 Contribution of capital principle – first practical experiences with 2010 annual financial statements Rainer Hausmann3 Switzerland, Germany amend double tax treaty Daniel Käshammer, Christian Wasser, Marlene Kobierski4 Overview over cantonal tax law develop- ments of selected cantons – Part 2 Diverse authors6 Disagreement in parliament on the Dear Reader, introduction of a single VAT rate Barbara Henzen, Ladina Nick7 “Too big to fail” The first quarter of 2011 is already behind us. In this issue we would like Hans-Joachim Jäger, Rolf Geier to provide you with up-to-date information about a number of exciting8 EU dialogue with Switzerland – solution developments during the period. within reach? Markus F. Huber We report on initial findings from the practical implementation of the new9 FATCA regulations will change the capital contribution principle, and explain the current situation arising from financial services landscape from 2013 the amended double taxation agreement that was signed by the finance onwards Hans-Joachim Jäger ministers of Switzerland and Germany on October 27, 2010. We also take a look at legislative changes and developments in Western Switzerland, Zurich,10 Switzerland: New Federal Law on the taxation of equity based compensation and Aargau in the second part of our canton update. schemes to be introduced in 2012 Markus Kaempf, Louise Barrelet The disagreement in parliament on single rate VAT and fiscal exceptions is also11 Current developments regarding Swiss highlighted, as is the controversy surrounding changes to the laws governing pension funds the handling of systemic risks by the big banks, under the keyword «Too big to Charlotte Climonet, Sandra Beer fail.» Furthermore, we focus on the dialog between the EU and Switzerland in12 Withholding tax developments for relation to the adoption of the EU Code of Conduct. employees resident in Switzerland and abroad Andreas Tschannen, Lukas Naef The Foreign Account Tax Compliance Act (FATCA) is practically a perennial13 VAT classification criteria service theme, and we explain the USA’s plans to close any gaps in the regulations that contracts / property purchase contracts may still exist. Susanne Gantenbein, Simone Wassmer14 Potential new regulations relating to intermediation services in the financial sector Barbara Henzen, Olivia Schwarz t
    • Finally, we take a look at the future, explaining the scope for interpretationoffered by the new Federal law on the taxation of equity-based compensationsystems that will come into force in 2012, and how it may be implemented inpractice.You will find these and many other practical topics summarized in this issue.We wish you an interesting and informative read.Sincerely,Dominik BürgyPartner, Tax Leader Switzerlanddominik.buergy@ch.ey.comTax News Ernst & Young April 2011 2
    • Contribution of capital principle be applied when it comes to writing off losses, but not when it comes to the cost– first practical experiences with 2010 of capital contributions, which is why tax adjustments are made. The only constantannual financial statements here is that both are charged to share- holders. As mentioned, the courts will definitely be able to give rulings on theseRainer Hausmann, Partner International Tax Services; Zurich, rainer.hausmann@ch.ey.com matters. 3. Can the use of the premium for In addition to ordinary annual 2. Can capital contributions that were direct depreciation in previous years be financial statements, a topic previously offset against earlier losses made retrospective again? much discussed over the past also be shown in reserves from capital The Code of Obligations allows the pre- few weeks has been the practical contributions? mium to be used for depreciation, but implementation of the contribution The circular on the contribution of capital such depreciation is very rare and dis- principle explicitly states that capital couraged in legal literature. There appear of capital principle. There has been to be problems if this type of depreciation contributions that were cancelled through a never-ending list of questions stated in a previous year is made retro- the elimination of loss carry-forwards to be answered. Very often, these under commercial law, may not be shown spective for the purposes of reporting arevolved around how to post capital as reserves from capital contributions for higher capital contribution. This would contribution reserves, responsibi- require an adjustment to financial state- tax purposes. Moreover, losses that were lities regarding reclassifications ments that had already been approved charged to those reserves from capital and would be very difficult to carry out or whether to present capital con- contributions may reduce these defini- in practice. Furthermore, the Federal Tax tribution reserves in the balance tively. It is worth noting here that accor- Administration could take the view that sheet or the notes. The focus has ding to the Federal Tax Administration, capital contribution reserves set against no longer been so much on purely the principle of authoritativeness must losses are permanently lost. technical tax considerations and the most contentious issues have been the same to a certain extent.However, there were always new to- pics to discuss. Three major issues are treated again below. Switzerland, Germany amend double tax treaty Daniel Käshammer, Senior Manager German Tax Desk New York; Daniel.Kaeshammer@ey.com Christian Wasser, Senior Manager Tax Services Zurich, christian.wasser@ch.ey.com1. Does the cost of a capital Marlene Kobierski, Assistant Tax Services Bern, marlene.kobierski@ch.ey.comcontribution reduce capital contributionreserves?The Federal Tax Administration has On 27 October 2010 the finance exchange of information. In line with thisapparently issued internal guidelines regulation, the competent authorities of ministers of Switzerland andaccording to which the costs of a capital Germany signed a new protocol Switzerland and Germany will exchangecontribution reduce capital contribution that will amend the double tax such information as is foreseeablereserves. This applies irrespective of treaty between the two states. It relevant for carrying out the provisionswhether these costs are posted through of the treaty as well as the domestic taxthe income statement or charged includes changes of the dividend laws of both states with respect to taxesdirectly to equity capital. The Federal Tax article, the non-discrimination of any kind. Therefore, the parties are notAdministration is therefore not applying clause, the mutual agreementthe principle of authoritativeness on this allowed to decline providing information procedure and the exchange of solely because the information is heldpoint and is making a tax adjustment information. Furthermore, theaccordingly. This may have a serious by a bank, another financial institution, ministers declared their intention a nominee or an agent of a financialimpact on shareholders, as considerablecosts are incurred, particularly when lar- to solve jointly the conflict institution. The protocol states thatge capital increases are carried out. The regarding Swiss bank secrecy and “fishing expeditions” are not allowed.Tax Administration’s approach is hard to tax evasion. Accordingly, there must be sufficientunderstand if, depending on the situation, evidence to identify the person involvedthe principle of authoritativeness is used in the investigation. Likewise, the partieson one occasion but then not on another. Exchange of information are not obliged to exchange informationThe courts will definitely have the last The new protocol adopts the standards on an automatic or spontaneous basis.word on this subject too. See also the of Article 26 of the OECD model con- Finally, taxpayers are entitled to usenext point in this regard. vention (OECD-MC) with regard to the the usual domestic procedural rights to Tax News Ernst & Young April 2011 3
    • oppose a disclosure, including the rights subject to a residual withholding tax of calendar year next following that in whichof first notification or of an administrative 15%. the Protocol enters into force, wherebyappeal, before the requested state is • The non-discrimination article now specific details apply for the individualallowed to exchange the information. includes a new paragraph in line with provisions. article 24 para. 4 of the OECD-MC.Further changes included in the Based thereon, interest, royalties and Declaration of intent to end the taxprotocol other disbursements paid by a compa- disputeThe new protocol also includes, among ny to a resident in the other state are To end the tax dispute between Switzerlandothers, the following changes: deductible for income tax purposes, and Germany, the two states signed a• The threshold for qualified participa- similar to such payments within one non-binding letter of intent to introduce a tions, eligible for the 0% withholding state. The same applies for any debts withholding tax on taxpayers who prefer tax rate, decreases from the current with regard to capital taxation when not to “officially” declare their income out rate of 20% (without any specific the oblige is a resident of the other of their passive assets. This letter of intent holding period) to 10% combined with contracting state. follows the one Switzerland signed with the a holding period of at least 12 months. • The mutual agreement procedure is United Kingdom on 25 October 2010. The If a dividend is distributed within the extended by introducing an arbitration contemplated withholding tax on past and first 12 months of holding, the 0% rate clause and detailed regulations as future capital income will provide for a tax may be claimed retroactively, once regards procedural aspects. burden comparable to the regular taxation the one-year holding requirement is in Germany. The Protocol will enter into force after fulfilled. the implementation procedures of both Furthermore, the parties concluded• Furthermore, the protocol clarifies contracting states have been completed that they seek for an amicable solution that dividends distributed by a quoted and the contracting states have notified regarding the issue of the purchase of data German real estate corporation (REIT- each other accordingly. The provisions of relevant for tax purposes (i.e., data CD) AG), a German investment fund or a the new protocol will generally apply on as well as the market access of financial German investment corporation are or after the first day of January of the service providers.Overview over cantonal tax law developmentsof selected cantons – Part 2Author index at the end In this second part of our overview Canton of Aargau Federal Supreme Court ruling on partial of the changes made to cantonal taxation of holdings tax law for 2011, we will be Implementation of corporate tax The legislature of the canton of Aargauconsidering the caontons of Aargau reform II has not yet corrected its provisions, and Zurich as well as the French- The canton of Aargau already implemen- deemed illegal under a Federal Supreme speaking Switzerland, i.e. the ted a number of changes envisioned in Court ruling of 25 September 2009, on cantons of Fribourg, Geneva, Jura, corporate tax reform II before 2011, such the partial taxation of qualifying holdings. Neuchâtel, Vaud and Valais. as the expanded replacement provision. The ruling stated that the restriction of The remaining provisions which had to the partial taxation to holdings in Swiss- be implemented came into effect on domiciled companies violates the FederalOne change occurring in all of the French- 1 January 2011. These included (i) Constitution. Furthermore, according tospeaking cantons is the entry into force extending the participation exemption the Supreme Court, the application of theon January 1, 2011 of all mandatory (Beteiligungsabzug), (ii) introducing partial taxation for (qualifying) holdingsFederal legislation (or its incorporation the capital contribution principle, (iii) is also unconstitutional for wealth taxinto cantonal laws) regarding theCorporate Tax Reform II, including new valuing securities as business assets more purposes. This may also apply to thethresholds for participation exemption advantageously, (iv) deferring taxation more general regulations in Aargau where(on dividends or capital gains) and on the transfer of property from business for wealth tax, a 50% reduction in thenew rules on tax-exempt replacement assets to private assets and (v) allowing tax value applies to shares in domesticpurchases. Only the other changes are tax relief for liquidation profits at the end corporations and cooperatives that arelisted below. of self-employment in specific cases. not traded on an organized basis. Tax News Ernst & Young April 2011 4
    • Canton of Zurich which means that the sale of business considerable borrowed funds to finance property is subject to property gains tax. transactions» criteria. It may be assumedImplementation of corporate tax While gains from the sale of business that the Federal Supreme Court will retainreform II property under the dualistic system are its rather broadly formulated rules.Under statutory law, Zurich will not subject to regular corporate incomeimplement the federal corporate tax tax and it has always been possible to offset them against any operating losses, Voluntary declaration of tax evasionreform II provisions until the beginning offsetting between different cantons and simplification of the additionalof 2012, subject to the adoption of the with regard to properties located in taxation in case of inheritanceplanned referendum on 15 May 2011. monistic cantons became only mandatory In March 2010, the canton of ZurichIn the meantime however, the relevant following several Federal Supreme Court published a leaflet on the voluntaryprovisions of the Tax Harmonization Act rulings issued between 2004 and 2006. declaration of tax evasion with immunityapply directly. Accordingly, the cantonal However, offsetting is still not permitted from prosecution and on the simplifica-tax authorities have already amended within the canton, at least for the time tion of the additional taxation in case ofvarious directives to reflect the new being. Although the Zurich Administrative inheritance. It states that any taxpayer(material) legal situation (see taxation of Court recognized that the Zurich regula- who voluntarily report tax evasion orcompanies with qualified holdings as well tions are unconstitutional, it decided not tax fraud themselves for the first timeas holding, domiciliary and mixed compa- to intervene directly in legislation due and fulfill other criteria set out in thenies; valuation of securities and assets for to the division of powers principle. The leaflet would not have to pay a penaltywealth tax; coordination of (corporate) ruling is the subject of an appeal to the tax. However, additional tax and defaultincome tax assessments and property Federal Supreme Court and is therefore interest would still be payable. If heirstax assessments for business assets and not yet legally binding. Those people report that a deceased person madeof legal entities). The proposal for the affected should keep an eye on further incorrect declarations, the additional taxreferendum also provides for corporate developments and adjust their approach due on the corrected positions wouldincome tax to be offset against capital tax accordingly. only apply for the last three years priorin future. to death rather than the last ten years, as was previously the case. Like corporateShareholders’ debt waivers tax reform II, Zurich plans to implement Commercial securities tradingOn 30 June 2010, the Zurich these requirements of the federation into In two rulings in 2010, the ZurichAdministrative Court issued a ruling con- statutory cantonal law at the beginning Administrative Court upheld itscerning the tax treatment of debt waivers of 2012. In the meantime, the correspon- regulations on the «commercial natureby shareholders in the event of restructu- ding provisions of the Tax Harmonization of activities» which differ from those ofring. Under it, Zurich’s current cantonal Act apply directly in this matter as well. the Federal Supreme Court. Accordingly,practice must be applied for the purpose still all criteria of self-employment haveof direct federal taxes as well as cantonal to be met cumulatively to determineand municipal taxes. This practice Revision to reduce the tax burden on whether private asset management or individualsstates that an investor’s debt waiver in a whether commercial securities trading iscompany undergoing restructuring should This revision of Zurich tax law, which in- taking place (respectively whether the cludes the elimination of the two highestas a general rule be treated as a tax-free capital gains generated are tax-exemptcapital contribution. The debt waiver may progressive tax brackets and an increase or taxable). This specifically includes in numerous deductions, is also subject toonly be reclassified as a taxable gain if demonstrating clear participation in thethe shareholder committed to the waiver a referendum on 15 May 2011 along with market place. The case is still pending two counter-proposals. If adopted, thein his function as business partner similar before the Federal Supreme Court.to third-party creditors. This differs from changes will probably come into effect inthe Federal Tax Administration’s current In 2009, the Federal Supreme Court 2012.rules where, for direct federal tax, ge- confirmed in a similar case its own set ofnerally every debt waiver is classified as criteria on commercial securities tradingtaxable income and may only be treated under which not all indications have toas tax-neutral in exceptional cases. The be met cumulatively. Unlike the Zurich Canton of FribourgFederal Tax Administration has appealed Administrative Court, it maintained that A new law on intercommunal financialthe ruling to the Federal Supreme Court. in carrying out securities transactions, equalization, which entered into force onThe Tax Office of the Canton of Zurich has the taxpayer appears to clearly act on the January 1, 2011, has been implementedtherefore decided to wait for the Supreme market irrespective of whether they carry by the canton of Fribourg to reduce theCourt’s decision before dealing with any out the transactions themselves or autho- financial disparities between municipali-debt waivers that would be assessed dif- rize a third party to do so. Furthermore, ties.ferently under Zurich and Federal rules. it deemed the «systematic approach» and «use of specialist knowledge» criteria In addition, a reduction of corporate tax to be no longer appropriate, as these rates has been introduced (shown belowAllocation losses within the canton are met by nearly everyone today. It before multipliers, e.g. consolidated can-The canton of Zurich applies the monistic set greater store instead by the «level tonal/communal multiplier for Fribourg issystem to the taxation of property gains, of transaction volume» and «use of 187.3%): Tax News Ernst & Young April 2011 5
    • • Corporate income tax rate applicable However, the entry into force will only The capital tax rate was reduced by half to all types of companies, associations be effective subject to two cumulative from 0.12% to 0.06% (before multipliers, and foundations was cut to 8.5% conditions : e.g. the consolidated cantonal/ communal (having been 9.5% in 2010). multiplier for Lausanne is 234.5%). • referendum against this law change• Capital tax applicable to corporations should be rejected by popular vote on and cooperatives will from now on be April 3, 2011 and calculated at the rate of 0.16% (0.18% Canton of Valais • another cantonal law on children care in 2010). Since January 1, 2011, gifts and should be accepted by popular vote on• Holding and domiciliary companies April 3, 2011. donations to non-profit organizations pay tax on capital at a rate of 0.017% based in Switzerland and benefiting from (0.019% in 2010), and the rate tax-exemption (due to corporate goals On March 24, 2011, the Federal Court remains unchanged at 0.008% for of public service or non-profit public cancelled the vote, however originally capital above 500 million francs. activity) are deductible up to 20% of the set on April 3, 2011, following an appeal net corporate income (10% in 2010). filed by two citizens of the canton of• Capital tax rate applicable to associ- Neuchâtel. After alignment of the two ations, foundations and other legal bills in Parliament, it is anticipated, in Authors entities was cut to 0.255% (0.285% in the event of a favourable vote of the 2010). Aargau, Zurich Neuchâtel Parliament, that the vote of the people of Neuchâtel, this time only on Christian Wasser, Senior Manager Tax Services Zurich, christian.wasser@ch.ey.comCanton of Geneva the referendum against the tax rules, may David Schneider, Assistant Tax Services Zurich, be held in summer 2011. david.schneider@ch.ey.comNo other changes. Fribourg, Geneva, Jura, Neuchâtel, Vaud and Valais Eric Duvoisin, Manager Corporate Tax,Canton of Jura Tax Services Geneva, eric.duvoisin@ch.ey.com Canton of Vaud Viviane Disière, Assistant Corporate Tax,No other changes. A new law on intercommunal financial Tax Services Geneva, viviane.disiere@ch.ey.com equalization with entry into force as of January 1, 2011, was implemented byCanton of Neuchâtel the canton of Vaud in order to reduceIncome tax should offset capital tax with financial disparities between municipali-entry into force in January 1, 2011. ties.Disagreement in parliament on the introduction of a single VAT rateBarbara Henzen, Partner Indirect Tax Zurich, barbara.henzen@ch.ey.comLadina Nick, Assistant Indirect Tax Zurich, ladina.nick@ch.ey.com On 14 March 2011, the Council of The Swiss VAT reform is scheduled to be have remained in effect as no changes to States debated the second part of carried out in two stages. The first stage them were planned. The third alternative the Swiss value-added tax (VAT) has already been implemented with a total evaluated corresponds to the dual rate revision of the VAT Act that came into model already submitted for consultation, reform, including the introduction effect on 1 January 2010. On 24 June in which the standard rate of 8 % would of a single VAT rate. In contrast to 2010, the Federal Council submitted the remain unchanged. Exceptions would the National Council, the Council politically disputed second part of the be repealed to the same extent as in the of States has decided not to refer reform to the parliament. The Federal first model. However, these areas would the draft back to the Federal Council had first considered a number be subject to a reduced rate of 3.4%. In Council. The single VAT rate was of possible reforms and examined three the end, the Federal Council has decided also debated controversially in the alternative models. The first alternative to support the first alternative and to involved replacing the three current rates propose the introduction of a single rate Council of States however: The with a single rate of 6.5% and abolishing of 6.5 %. small chamber’s decision not to most fiscal exceptions. The second refer the draft back was a close alternative also foresaw merging the three The National Council rejected the Federal 19 to 18 vote. current tax rates into a single rate of 7.1%. Council’s proposed single rate on 15 However, existing fiscal exceptions would December 2010 and referred the matter Tax News Ernst & Young April 2011 6
    • back to the Federal Council. The National to expand the five exceptions provided Following the Council of States’ decision onCouncil has instructed the government for in the draft. In the referral application, 14 March 2011, the National Council willto work out a dual rate model with it demanded additional exceptions for reconsider its rejection of the draft. If theexceptions. The National Council wants the healthcare and education, culture, National Council should confirm its earlierfood plus the hotel and restaurant industry sporting events as well as for charitable decision, the referral of the draft back toto be subject to a reduced tax rate, but organizations. The Federal Council was the Federal Council becomes definitive.did not specify what that rate should be. instructed to avoid tax increases in the New developments can therefore beFurthermore, the National Council voted development of the new draft. expected. We will keep you informed.“Too big to fail” (which usually include a clause on the ex-Hans-Joachim Jäger, Partner Financial Services Zurich, hans-joachim.jaeger@ch.ey.com change of information), the Swiss payingRolf Geier, Partner International Tax Services Zurich, rolf.geier@ch.ey.com agent is under no obligation to withhold. Finally, where the interest recipient is a natural person residing in a EU member country, the EU savings tax needs to be In November 2009, the Swiss tax on bonds and money market papers withheld (also on Swiss bonds under the Federal Council had commissioned entirely and (ii) to abolish the issuance proposed regulations) unless the payee an expert party to propose stamp tax on shares / stock in particular, chooses to be reported on. changes in the Swiss law. These that had been issued subsequent to the conversion of a CoCo bond. (i) The proposed measures are supposed to changes should prevent default facilitate investments of foreign lenders This is supposed to render the Swiss situation of banks, which are financial market more attractive for in Swiss bonds where otherwise the Swiss considered relevant for the Swiss those domestic debtors wishing to issue withholding tax was considered a major economy (so-called “too big to bonds in Switzerland and to alleviate the impediment, both from a cash-flow and fail” institutions). Within the inter-company financing through treasury administrative burden perspective. At proposed legal changes, there centers in Switzerland. In addition, the the same time, the paying agent system proposal (ii) is supposed to enable Swiss should ensure that Swiss resident taxpay- are also accompanying measures banks to issue CoCo bonds under Swiss ers (notably natural persons) comply with pertaining to the Swiss tax their tax filing obligations (otherwise, law – notably in the field of the law and still provide a tax treatment that also appears attractive for foreign the tax withheld would constitute a non- Swiss issuance stamp tax and the creditable charge) and that residents of investors. Swiss withholding tax on interest non-treaty countries suffer the 35 percent payments. b) Withholding taxes withholding as a final cost. In all other In the area of withholding taxes, the cases, the tax authorities have ways and proposed changes are more radical: means to either audit the payees’ taxBanks are currently considering to issue compliance or request further information for interest payments (not though forcontingent convertible bonds (“CoCo in their respective countries of residence. dividend payments), the long establishedbonds”) which can be converted into Swiss system of withholding tax is sup- Whilst the proposed measures appear toequity once a bank falls short of certain posed to be transitioned from the debtor be helpful for the Swiss bond issuanceequity thresholds. From a political angle, principle to a paying agent system – as market, paying agents are likely to faceand to prevent that Swiss banks need is already known for the EU savings tax. additional burdens: they need to haveto issue their CoCo bonds in a foreign Besides banks, every economic operator systems in place which must be able tojurisdiction, it seems desirable that Swiss paying interest on bonds would need to clearly identify different categories ofbanks can issue their convertible bonds withhold 35 percent of Swiss withholding payees with a higher granularity of infor-in Switzerland and under the regulations taxes if paid to certain recipients. mation (a task formerly not necessary).of the Swiss domestic law. In particular, Essentially, the paying agent would need In addition to this, payment streamsthe issuance tax on the issuance of the to withhold on interest payments resulting (including original issue discounts) origi-bond itself, on the issuance of new shares from Swiss and foreign bonds if paid to nating from both, foreign and Swiss-issuedsubsequent to a possible conversion as Swiss resident natural persons. Where the bonds need to be flagged and will triggerwell as the burden of the withholding tax recipient — irrespective of its legal nature a withholding.are perceived to be a strong impedimentto the decision of issuing these bonds — is resident in a non-treaty country, the The effective date for the accompanyingin Switzerland. Hence, the proposed Swiss paying agent also needs to withhold, tax measures described in this memoran-changes: albeit only on interest resulting from dum is not expected before calendar year Swiss (or certain deemed Swiss) bonds, 2012. The measures need to pass thea) Issuance stamp tax however, not on foreign bonds. With a re- parliamentary process and are potentiallyThe working party proposes to (i) cipient resident in a country, which has a subject to a referendum before they cangenerally abolish the issuance stamp comprehensive tax treaty with Switzerland take effect. Tax News Ernst & Young April 2011 7
    • EU dialogue with Switzerland – solution within reach?Markus F. Huber, Doctor of Law (Dr.iur.), Partner International Tax Services Zurich, markus-frank.huber@ch.ey.com It is well known that one reason was the argument that the Free Trade have to officially declare that the negot- why multinational companies base Agreement only covered trade in certain iations would start from scratch without themselves in Switzerland is its fa- goods and could therefore not serve as a any pre-conditions. Furthermore, the basis for reviewing cantonal tax regimes allegation would have to be withdrawnvorable tax environment. According to see if they distorted competition. that the cantons were breaching the Free to the European Commission, this Trade Agreement. Although the detailed results in a lower tax burden on EU Code of Conduct on “harmful” tax outcome of discussions between the their corporate profits in certain measures Swiss cantons is not known, it can betax systems. Such taxation regimes The EU’s ministers of economic affairs expected that Switzerland will be willing agreed to the EU Code of Conduct in to accommodate the EU. In addition, the are a thorn in the Commission’s 1997. The code was designed to elimi- business world is becoming more vocal side. The dialogue between the and demanding clarity on the future of nate «harmful» tax competition between Commission and Switzerland on the regimes in question. member states. The member states this issue was ineffective for a long were encouraged not to introduce such The canton of Neuchâtel has already time, but recent developments measures and to abolish existing ones. presented an «EU-compliant» tax reform indicate that an agreement is now The Primarolo Group was commissioned package in anticipation of this develop-closer than ever. The recent discus- and thereupon undertook this task with ment. Under the proposal, the controver- sions were used to sound out the great zeal. To date, 400 tax regimes have sial tax regimes would make room for the been investigated, of which more than tax rate of all legal entities to be halved extent to which Swiss cantons are 100 have ultimately been found to be which would place all companies on a willing to consider certain changes «harmful». level footing. The draft has an important at the levels of cantonal and muni- hurdle to negotiate in April when voters It was already stipulated in the original cipal taxation. It appears that the go to the polls on this issue. EU Code of Conduct that the application cantons are prepared to rethink of the Code’s principles and criteria to There appears to be movement in the tax certain tax regimes under certain dependent and associated areas – in dispute with the EU. Both sides are willing conditions, but the result definitely addition to member states – would have to find a solution. There are basically depends on the approach of EU to be taken into consideration. The three areas that should be followed up member states as well. new development is that when the EU’s on: ministers of economic affairs met on 8 June 2010, they expressed their stance 1. Reducing income tax rates. that non-EU countries would also have 2. Rethinking the subsidization system so to apply the principles and criteria. At that the cantons whose tax income isBackground the time, the EU’s ministers asked the primarily from companies taxed at theAt the beginning of 2007, the Commission to persuade Switzerland inCommission informed Switzerland that normal rate can also lower cantonal particular to adopt the Code of Conduct. and municipal taxes.it regarded certain cantonal tax regimes The fact that the EU has serious concernsas instances of state aid for the private about certain cantonal tax regimes is 3. Discussions with the Europeansector – which is frowned upon – because confirmed by the fact that, in addition to Commission regarding the Code ofthey are applied on a selective basis. the EU’s economics ministers, its foreign Conduct, which should be pursuedIt said that this distorted competition ministers also took a clear stand recently. separately from the other two areas.between companies, thereby restricting At their meeting on 14 December 2010,trade in goods. The Commission thus they expressed their disappointment However, there are still some politicalfound these practices incompatible that the long-running dialogue with obstacles that the draft will have towith the Free Trade Agreement signed Switzerland had still not resulted in the overcome.between Switzerland and the EU in 1972. abolition of certain cantonal tax regimes.Switzerland has always rejected this posi-tion. It pointed out that as a non-member Cantons appear ready for dialoguestate, it was not part of the internal EU After the EU was keen to see quick resultsmarket and was therefore subject neither on cantonal tax regimes rather thanto the competition rules of the European lengthy discussions on the whole EUCommunity Treaty such as those on Code of Conduct, the cantons for theirstate aid nor to the EU Code of Conduct. part indicated that they were ready forEqually important for Switzerland’s stance dialogue. Nevertheless, the EU would Tax News Ernst & Young April 2011 8
    • FATCA regulations will change the financialservices landscape from 2013 onwardsHans-Joachim Jäger, Partner Financial Services Zurich, hans-joachim.jaeger@ch.ey.com The Foreign Account Tax holders who fail to properly identify them- now qualify as U.S.-source payments Compliance Act (FATCA) came selves. U.S.-sourced payment encompass Foreign (non-U.S.) securities held into effect on 18 March 2010 not only U.S. dividends and interest but directly or indirectly by U.S. persons when President Obama signed also proceeds resulting from the sale of are now also included in reporting securities which yield revenues from U.S. the “Hiring Incentives to Restore • New reporting and withholding sources. Employment Act”. FATCA is obligations in addition to those of the designed to discourage tax abuses It is estimated that the new regulations existing QI regime by significantly extending and affect hundreds of thousands of finan- • Identification and documentation of cial intermediaries worldwide, including clients becomes considerably more intensifying the requirements banks, brokers, investment companies, onerous, whereby the burden of laid out in the current Qualified certain insurance companies as well as Intermediary (QI) regime. proof partly resides with the financial fund structures. institution In order to comply with FATCA, insti- • Annual reporting to the IRS on all tutions must adapt and revamp their assets held by identified U.S. personsWith the QI regime, the U.S. became one operating models, ranging from the iden- and by foreign entities substantiallyof the first countries to set their sights tification and documentation of clients, owned by U.S. personson taxpayers’ assets deposited abroad, in to the product portfolio and IT systems,order for these to be disclosed and taxed. through to the internal processes. TheseHowever, until now, these regulations changes must occur group-wide.only covered U.S. securities which wereheld by U.S. persons directly, who have The new regulations, which still needbeen disclosed as such to the financial detailed clarification by the IRS and theintermediary. As a consequence, interpo- U.S. Treasury, have prompted numeroussing a company or legal entity between discussions among market participants.the foreign bank and the former account In particular, these discussions relate toholder, could have resulted in situations questions on future business models,where there was no reporting to the U.S. such as servicing U.S. clients and / ortax authorities. holding U.S. securities.With the intention of closing this There is considerable time pressure,loophole, FATCA requires all foreign as the new regulations will apply tofinancial institutions (FFIs) to enter payments from the start of 2013. Theinto an agreement with the U.S. Internal new rules affecting dividend-equivalentRevenue Service (IRS). With this payments have been in effect sinceagreement, the institutions (participating September 2010.FFIs) undertake to identify certain U.S.accounts and to report their assets.Essentially, the term “U.S. accounts” co- Overview of key changesvers all account relationships that either • Foreign financial institutions areU.S. natural persons or legal entities, required to enter into an agreementwhich are substantially (i.e. more than with the IRS or suffer 30% withholding10%) held by U.S. persons, maintain with tax on their own and their clients’such FFI. To enforce compliance with this U.S.-sourced income as well as on anyagreement and to encourage financial sales proceeds resulting from the saleinstitutions to enter into such agreement, of U.S. securitiesFATCA introduces an impressive threat: • Payments resulting from certainU.S. withholding agents or participating transactions previously not consideredFFIs are required to impose and deduct U.S.-sourced—e.g. certain paymentsa 30% withholding tax from U.S.-sourced under securities lending agreements“withholdable” payments paid to non- or under swap contracts, which areparticipating institutions or those account referenced to U.S. securities—could Tax News Ernst & Young April 2011 9
    • Switzerland: New Federal Law on the taxation of equitybased compensation schemes to be introduced in 2012Markus Kaempf, Senior Manager Human Capital Zurich, markus.kaempf@ch.ey.comLouise Barrelet, Senior Manager Human Capital Lausanne, louise.barrelet@ch.ey,com The new Federal Law on the taxa- at both at Federal and at Cantonal level, resident in Switzerland, the portion of tion of equity based compensation under the new Federal Law. However, the the benefit taxable in Switzerland has to schemes sets out the timing of the main changes relate to the taxation of be calculated on a time-apportionment stock options, especially in the French basis. The allocation is based on the time taxation of equity based compen- speaking part of Switzerland, and in spent in Switzerland during the vesting sation (including restricted stock, cross-border situations. period as a proportion of the total vesting stock options, restricted stock period. This rule follows the OECD re- units, stock appreciation rights, According to the new Federal Law, a diffe- commendation published in 2004. In this rentiation is made between unrestricted regard, it has to be further analyzed how etc.) as well as the reporting and restricted stock options, as well as and withholding obligations for the cross-charge of related costs between between tradable and non-tradable stock foreign and Swiss based companies within “imported” and “exported” equ- options. the same group will impact the allocation ities belonging to internationally method. This is due to the Directive mobile employees. The Swiss Tax issued by the Cantonal tax authorities of The point of taxation of employee stockHarmonization Act obliges all Swiss options Zurich in October 2009 which states that Cantons to implement the new Unrestricted and tradable stock options the amount charged back to Switzerland Federal Law, with the consequence are taxable at the date of grant and the is the minimum amount subject to that the tax treatment will be the taxable value equals the fair market income tax in Switzerland. A further value of the option at grant. Any gain question is whether Switzerland must same irrespective of which Canton from selling or exercising the option is have a valid double taxation treaty inthe employee is tax resident within. place with the country from which the considered to be a tax-free private capital Nevertheless, based on the appro- gain (unless the beneficiary qualifies as a equities are being exported and importedved wording of the new Federal Law, commercial security dealer). to Switzerland. Presently, the Canton ofthere is still room for interpretation Zurich only grants an exemption on a and practical implementation. However, restricted stock options that time-apportionment basis for imported are not tradable are taxed at the date of equities if the exemption is claimed under exercise. Consequently, the gain realized a double tax treaty.On 6 December 2010, after six years at exercise (i.e. the difference betweenof debate regarding the wording , the the exercise price and the fair market It is also interesting that the new FederalFederal Parliament voted for the new value of the underlying share at exercise) Law only addresses stock options forFederal Law on the taxation of equity is deemed to be employment income and cross-border situations. Consequently,based compensation schemes. The new is taxed accordingly. the Cantonal tax authorities can still applyFederal Law is likely to be implemented their own cross-border taxation rules for Based on the current wording of the new restricted stock units, stock appreciationfrom 1 January 2012, unless a citizens’ Federal Law, it is debatable whether stock rights etc.initiative is undertaken. The proposed options that have a restriction periodtransitional rules, which have not yet but become tradable after the restriction Extended withholding taxationbeen finally approved by the Federal lapses become immediately subject to According to the new Federal Law, anyCouncil of Switzerland, stipulate that tax based on their fair market value at gain that is realized when a taxpayerequity grants made prior to that date are the first trading day (i.e. taxation at is no longer tax resident in Switzerlandstill taxed under the current Cantonal and vesting) or if they are also subject to tax but where a portion of the realized gainFederal rules, , respectively in accordance at exercise/sale. is subject to tax in Switzerland basedwith existing tax rulings. However, if on the time-apportionment rules (i.e.the tax year in which the taxable event Stock options that entitle an employee if the taxpayer was at least partially taxoccurred is not yet finally assessed, the to receive a cash payment instead of resident in Switzerland during the vestingtaxpayer can make a claim for a revised acquiring actual shares (either volun- period), the Swiss based company istax treatment under the provisions of the tarily or mandatorily) are regarded as obliged to withhold Federal tax at a flatnew law. All equity grants made after the non-genuine participation rights and are rate of 11.5%. On top of the Federal tax,new law comes into force will be taxed in therefore exclusively taxed at exercise. the employers also need to withhold theaccordance with it. Existing rulings that It is debatable whether an option that is Cantonal/Municipal taxes. In this regard,either do not fall within the scope of the tradable but envisages a cash settlement it is still unclear what tax rates the Cantonsnew legislation or are not in contradiction is taxable at grant or at exercise/sale. will apply (flat or progressive rates).with it are still valid.The timing of the taxation of restricted Taxation of equity based compensation Next stepsstock, restricted stock units and phantom plans in cross-border situations Employers should review their currentplans (i.e. non-genuine participation Where stock optionswith a vesting period equity based compensation schemesrights) essentially remains unchanged, partially vest whilst a taxpayer is tax and related tax rulings in light of the new Tax News Ernst & Young April 2011 10
    • Federal Law in order to guarantee com- for internationally mobile employees Whenever employees have been residentpliance from a reporting and withholding because of the possible trailing liabilities in Switzerland during the vesting period orperspective. Special attention is required in Switzerland and other countries. at exercise, special attention is required.Current developments regarding Swiss pension fundsCharlotte Climonet, Senior Manager Human Capital Geneva, charlotte.climonet@ch.ey.comSandra Beer, Senior Manager Human Capital Zurich, sandra.beer@ch.ey.com This article contains two current • If the tax deduction has already been apply to the transfer of foreign pension developments regarding Swiss 2nd accepted, and then a withdrawal is assets into Switzerland if the following pillar pension funds (occupational subsequently made within 3 years, the criteria are all met for such transfers:pensions). The first part relates to tax authorities will re-open prior tax • The foreign pension fund transfers the years and retroactively disallow the changes in the tax consequences assets directly to the Swiss pension deduction. of making voluntary buy¬-backs of fund. missing contribution years. In the • In cases where a tax deduction is not • The rules of the Swiss pension scheme accepted, the amount that was denied case of a lump sum capital with- allow for this type of transfer from for- as a deduction is exempt from taxationdrawal within the blocking period of at the withdrawal. eign pension funds. It should be notedthree years after the buy-back, the that not all Swiss pension funds will • The new rules apply to 2nd pillar want to meet the potentially extensive tax relief is disallowed retrospec- buy-backs made after 19 August 2010 administrative reporting obligationstively in the year in which the buy- which was the publication date of back was made. The second part that may arize through accepting the the Federal Supreme Court’s ruling. transfer of foreign assets. deals with the transfer of foreign However the Geneva Tax Authorities pension assets into Swiss pension For example, the UK pension law will only apply this rule to buy-backsfunds and the conditions that have requires reporting obligations by the made after 1 January 2011. foreign pension fund for a period of to be met. • In practice, the tax authorities will not five years. refuse a deduction for 2nd Pillar buy- • The insured person does not claim tax backs if the contribution is immaterial. deductions for the transfer of pension1. Changes in the tax deductionof For he Zurich tax authorities, the con- assets. 2nd pillar buy-backs tributions are considered as immaterialFollowing a Federal Supreme Court if the buy-back amount is less than CHF The 20% limit continues to apply to anyruling of 12 March 2010, the Swiss Tax 12’000. The Geneva tax authorities buy-back after foreign assets have beenConference published guidelines on the have not yet defined any ceilling. transferred into a Swiss pension fund.tax deduction of 2nd pillar buy backs that • The tax deduction taken at the begin-should be applied in all cantons. ning of the three-year period could be This type of transfer from abroad is disallowed retrospectively by the tax limited to the maximum amount theThe publication reports that any excepti- insured person can buy-back as per theonal 2nd pillar buy-backs will not be tax- authorities in the case of people who leave Switzerland within the three-year pension fund regulations.deductible if there is a lump sum capitalwithdrawal taken within the three-year blocking period and transfer their If a transfer is being considered, attentionblocking period following the buy-back. pension assets into a vested benefits must be paid to the fact that the purchase account. contribution for the insured employeeThe main points are the following ones: is thereby reduced in the Swiss pension 2. Transfer of foreign pension fund fund. The matter should therefore be• Tax relief on 2nd pillar pension buy- assets into Swiss pillar 2 analyzed on a case by case basis. backs will not be allowed if there is a Under revised Art. 60b of the Federal lump sum capital withdrawal within the Act on Occupational Pensions that has three-year blocking period following the applied since 1 January 2011, insured buy-back. It is not important whether persons may transfer foreign pension the withdrawal includes the amounts Next steps assets into Swiss pension funds as long as bought back or whether it came from Employers and employees should note they fulfill certain criteria. ordinary pensioncontributions. The the following: three-year blocking period is now According to provisions introduced in included as an objective criterion for 2006 on the avoidance of tax evasion, 1. The impact of the new tax regulations assessing tax deductibility. It is no the annual buy-backe amount for insured on purchases into pension funds longer necessary to prove any tax employees who move to Switzerland from 2. The consequences of transferring evasion for the deduction to be refused. abroad is limited to 20% of insured salary foreign pension fund assets into Swiss Exceptions should only be permitted in within the first five years. Under the mo- pension funds for employees who cases of divorce. dified Art. 60b, this restriction does not relocate to Switzerland. Tax News Ernst & Young April 2011 11
    • Withholding tax developments for employeesresident in Switzerland and abroadAndreas Tschannen, Executive Director Human Capital Zurich, andreas.tschannen@ch.ey.comLukas Naef, Manager Human Capital Zurich, lukas.naef@ch.ey.com In assessing the tax situation In the claimant’s case, this meant the following year. It cannot be assumed of a person resident abroad but discrimination, as individual deductions that the German-speaking Swiss cantons employed in Switzerland, the are not contained in withholding tax will extend the submission deadline. The Federal Supreme Court based rates. Based on the anti-discrimination canton of Geneva accepts applications rules stipulated by the Agreement on the until 31 August of the following year. its ruling of 26 January 2010 Free Movement of Persons, the Federal on the anti-discrimination rules Supreme Court granted the claimant the stipulated by the Agreement on Application for rate adjustment – same deductions as those enjoyed by cantons with liberal regulations (e.g. the Free Movement of Persons. residents of Switzerland. As a result of Zurich, Berne, Aargau, Schaffhausen) Employees residing abroad this decision, individual deductions that If the canton already granted individual may not be treated worse than were previously rejected now have to be granted by cantonal tax authorities. deductions for rate correction purposes employees residing in Switzerland. before this ruling on international week- The ruling has since led to day residents, there will be little change selective adjustments in cantonal to its withholding tax regulations, as International weekday residents withholding tax regulations domiciled abroad anti-discrimination rules were not broken. but has not brought about any This mainly concerns international Applications for calculating corrections fundamental changes. Cantons weekday residents who are domiciled to withholding tax must be submitted to with traditionally restrictive abroad and work in Switzerland. A the relevant tax authority by 31 March of regulations in granting additional number of cantons (e.g. Basel-Stadt, the following year. One exception to this Basel-Landschaft, Zug, Schwyz) have is the canton of Aargau where correction allowances for international until now rejected individual deductions, applications are taken into account up to weekday residents (e.g. pillar 3a five years after the end of the tax year.contributions, dual accommodation e.g. there was no deduction for pillar 3a contributions or dual accommodation costs, high return travel costs, costs. Other cantons (e.g. Zurich, Berne, Taxation of foreign working daysetc.) will only examine applications Aargau, Schaffhausen) have already As international weekday residents do for adjustments to tax rates looked at relevant applications to take in- not have tax residence in Switzerland and individual deductions on dividual business expenses into account. because they regularly return to their the condition that 90% of the We should assume that the regulations main residence abroad, only the number familys worldwide income is will not change much in these cantons. of working days physically carried out in generated in Switzerland. Cantons “Quasi-residence” – cantons with Switzerland (= Swiss working days) can with liberal regulations in this restrictive regulations (e.g. Basel-Stadt, be subject to Swiss taxation (provided area will continue to examine Basel-Landschaft, Zug, Schwyz) that Switzerland has signed a double granting deductions as part of the taxation agreement with the foreign These cantons will now permit individual application to adjust withholding country of residence). The right to tax deductions for international weekday non-Swiss working days therefore lies tax rates. residents if 90% of the family’s worldwide with the foreign country of residence. income is generated in Switzerland. Given Exemption from these foreign working the example of the canton of Geneva, days should be applied for in all cantons it is conceivable that the cantons willBackground by the end of March of the following year apply ordinary income tax rates in orderOn 26 January 2010, the Federal in order to avoid the risk of an application to avoid discrimination. In addition,Supreme Court approved the appeal of a being rejected. For example, the Zug Tax married persons may apply for theSwiss national who resided in France but Authority tends not to handle revision ap- married persons’ withholding tax rate,worked in Geneva. When this national mo- plications based on international double whereby the family’s worldwide income,ved residence from Switzerland to France, taxation for those subject to withholding including interest income, rental incomethe income earned in Switzerland became tax if they are submitted after 31 March and other income, is taken into account tosubject to withholding tax. No longer a of the following year (not so, for determine the tax rate. Wealth tax is notresident of Switzerland, this taxpayer instance, in the canton of Zurich where taken into consideration.could no longer submit a tax declaration applications will still be accepted after 31and was therefore unable to benefit Any application must be submitted to the March for a revision, provided the 90-dayfrom (additional) individual deductions. relevant tax authority by 31 March of revision period has been observed). Tax News Ernst & Young April 2011 12
    • Foreigners living in Switzerland with a less than CHF 120,000 (otherwise a discrimination rules, it could be arguedpermit “B” subsequent assessment is made using the that the municipal tax base should also beFor foreign employees who live in tax form). As the withholding tax rate is used in cases where gross annual incomeSwitzerland but have no permanent based on a weighted average of municipal is less than CHF 120,000. However, thereresidence permit “C”, withholding tax tax rates in the canton, these foreign em- has not yet been a seminal court rulingdeduction normally represents the final ployees cannot benefit from a favorable on this matter.tax charge if gross annual income is municipal tax base. Bearing in mind anti-VAT classification criteria service contracts /property purchase contractsSusanne Gantenbein, Senior Manager Indirect Tax Geneva, susanne.gantenbein@ch.ey.comSimone Wassmer, Manager Indirect Tax Bern, simone.wassmer@ch.ey.com The tax position of construction Land belongs to the developer: tax-exempt without credit, and taxable self-supply has been abolishedd A sale (land and building) is normally goods and services have been supplied in under the new VAT Law. Now the tax-exempt without credit if the following respect of the building.distinction between taxable service criteria have all been met: Land belongs to the purchaser: contract and tax-exempt purchase • The purchaser acquires an off-plan If a property is being developed that contract is the crucial issue. property for which a development already belongs to the purchaser (cus- The Federal Tax Administration project is in place; tomer), this always means that taxable (FTA) published its practice, • A fixed price (set in advance by the goods and services are being supplied. retrospectively applicable from developer) is paid for the land and 1 July 2010 (voluntary from buildings; Land belongs to a third party: 1 January 2010), on making this • The purchaser can only exercise In this instance, usually only the sale of distinction in its VAT Info 04 limited influence on the construction, the land is tax-exempt without credit.(construction). Under the previous structure and design of the building Construction of the building is classified (including work in surrounding areas) as a taxable supply of goods and services. VAT Law, it was a question of and service providers (tradesmen); It is normal practice to deviate from this whether purchase or pre-purchase • There is only one contract (purchase rule if the purchaser of the land and thecontracts were in place prior to the developer are closely related parties. start of construction, but now it contract between developer and purchaser of land and building); In this instance, the same classification is important to determine who the criteria apply as if the land belonged to land being developed belongs to, • Risk and use are only transferred to the developer.when payment is made and whether the purchaser upon completion; The criterion of additional costs not there are extra costs to the fixed • Payment is made only after the buil- exceeding 5% (or 7%) of the fixed price in price offered for the land and ding has been completed and is ready particular may mean that a final assess- for occupation (a down payment of up building due to changes based on ment of the nature of the contract is only to 30% of the purchase price is still inindividual purchaser requirements1. possible retrospectively. To counteract line with this criterion). any risks, the contracts should ideally be analysed from a VAT perspective before If not all of these criteria have been met the project starts. or if the additional costs exceed 5% of the fixed price (7% if the land is not sold The authors will be happy to answer any by the developer but a building right is questions from affected companies about granted), only the sale of the land is the above issues. 1 Even before publication of the definitive practice by the FTA, Hans Rutschmann submitted a «removing VAT barriers on property sales» motion (10.4030) on 16 December 2010 in the National Council. The motion has not yet been dealt with in the assembly. It is geared specifically towards the criterion of funding and calls for the beginning of construction as the relevant time for the distinction, as was formerly the case. Tax News Ernst & Young April 2011 13
    • Ernst & Young Assurance | Tax | Transactions | AdvisoryPotential new regulations relating to inter- Ernst & Young is a global leader in assurance, tax, transaction and advisorymediation services in the financial sector services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. WeBarbara Henzen, Partner Indirect Tax Zurich, barbara.henzen@ch.ey.comOlivia Schwarz, Senior Consultant Indirect Tax Zurich, olivia.schwarz@ch.ey.com make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global The definition of taxable finders If intermediation is not based on a organization of member firms of fees in the financial sector could specific sales transaction or is unrelated Ernst & Young Global Limited (EYG), change, with the result that more to transactions that are subsequently car- each of which is a separate legal entity. ried out by the customer, there has been EYG, a UK company limited by guarantee,services in this area will be exempt does not provide services to clients. no intermediation under Art. 21 para. 2 from tax in future. point 19 letters a) to e) of the VAT Act. In Switzerland, Ernst & Young Ltd is a Instead, such acquisition of customers leading audit and advisory companyAccording to the draft VAT Sectors is to be viewed as a service in the field offering services with about 2,000Information 14 “Financial Sector”, inter- of advertising or providing information. employees at 10 locations also in the areamediation under Art. 21 para. 2 point Irrespective of how the corresponding of tax and legal, as well as in transactions19 letters a) to e) of the VAT Act should and accounting. compensation is determined, it is taxablenow be taken to mean any activity carried according to the type of service supplied For more information about ourout by an intermediary that consists of in each given case. organization, please visit www.ey.com/chworking towards concluding a contract inmonetary or capital transactions between If the change provided for in the drafttwo parties without the intermediary comes into force, it may have a majorbeing a party to that contract and without impact in terms of sales (more exempthaving self-interest in its contents. sales for intermediaries and therefore lower input tax deduction rates) and inIntermediation may involve providing a terms of input tax deduction (lower inputcontractual party with opportunities to tax charge for those who purchase these Imprintconclude a contract, making contact with services). We therefore recommend Tax Newsthe other contractual party or negotiating checking the VAT treatment of relevant Electronic publication in German, Frenchon behalf and on the account of the client transactions as soon as the final version and Englishon the details of reciprocal services. It of the brochure has been published.must always relate to an individual sales Produced and designed bytransaction that is to be brokered. Signing The draft VAT Sectors Information 14 Ernst & Young Ltdan actual agreement is not a requirement. “Financial Sector” provides for this Marketing and External CommunicationsThese activities were previously generally change to come into effect retrospec- P.O. Boxclassified as taxable finder’s fees (servi- tively to 1 January 2010. It is debatable 8022 Zurichces in the field of advertising or providing whether this retroactive applicability will Subscriptions / address changesinformation). be permitted, at least in cases where www.ey.com/ch/newsletter the new regulations work in favor of theThe new definition of a finder’s fee can taxpayer.be found at 5.10.2 letter c) of the draftbrochure and is as follows: www.ey.com/ch/tax © 2011 Ernst & Young AG All Rights Reserved. Note: The Tax News provide an overview of new tax developments. The content does not represent any tax advice. Tax News Ernst & Young April 2011 14