Recent statements made by experts from the Federal Tax Administration ("FTA") towards Swiss fund managers and banks seem to have created confusion among industry participants, advisors and the FTA. Did the FTA in fact break a well-established industry practice or just reemphasize what is, in its view, the application of existing rules?
While beauty always lies in the eye of the beholder, sometimes truth must be found elsewhere. Therefore, it seems worth having a closer look at the issues and possible ways to address them.
Swiss collective investment schemes are exempt investors for Swiss Securities Transfer Tax ("SSTT") purposes, whereas Swiss fund management companies (“Fondsleitung”) are not. Although a contractual collective investment scheme is represented and acts through its management company, the two are separate entities for SSTT purposes.
If the management company holds brokerage accounts with Swiss or Liechtenstein banks in its own name but for the account of the collective investment scheme, the fund management company is the counterparty in the transaction for SSTT purposes and cannot simply be replaced by the (separate) collective investment scheme through an “on behalf of” reference. This is due to the formal(istic) nature of SSTT. An unwanted consequence could be that the bank/broker is required to levy half of the SSTT due if the counterparty (i.e., the fund management company) does not identify itself as a Swiss Securities Dealer. If the bank/broker has received the blue Swiss Securities Dealer card from the management company, no SSTT is due but the fund manager must fulfil all related duties (see below).
It seems that such custodial/brokerage accounts recently came under more scrutiny from the FTA. The increased attention from the FTA lead to a belief that the established practice had changed, whereas only the correct formal setup was, in fact, under review.
Affected Swiss fund managers have, in principle, two possibilities to avoid SSTT being levied. They must either ensure that the relevant accounts are always opened directly in the name of the collective investment scheme (knowing that in case of contractual collective investment scheme there is lack of legal personality) and not in the name of the fund management company. According to oral statements made by the FTA it is not feasible to open the account in the name of the fund management company with a separate reference naming the collective investment scheme.
Or, the fund management company identifies itself as a Swiss Securities Dealer towards the bank/broker by providing its blue Swiss Securities Dealer card and therefore becomes responsible for properly recording the transaction in its SSTT journal.
In both cases, no SSTT on transactions for the benefit of the collective investment scheme will be levied. However, under the 2nd option, the burden of keeping a journal lies with the fund management company. Based on the Swiss Stamp Tax Ordinance the FTA may allow for a simplified journal in order to avoid unnecessary administrative burdens. Such relief may be requested by a fund management company. Outsourcing of the journal maintenance back to the bank/broker is allowed but the entries therein must show the collective investment scheme as party to the transaction, not the fund management company.
In essence, the correct formal setup is key when dealing with SSTT as there is no room for a substance-over-form approach.