The Swiss Federal Council began the consultation on amendments to the Swiss Common Reporting Standard (CRS) Law and Ordinance on 27 February 2019. The amendments follow recommendations made by the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum). The consultation period lasts until 12 June 2019 and the amended CRS Law and Ordinance are scheduled to become effective as of 1 January 2021. Read on for an overview of the most important changes.
The consultation envisages modifications to the Swiss CRS Law and Ordinance in the followings areas:
Removal of certain Swiss-specific non-reporting FI categories
As of 1 January 2021, Swiss condominium owners’ associations and collective ownership associations will no longer classify as non-reporting financial institutions (FIs). According to the Federal Council’s explanatory report, the Global Forum confirmed that such entities would always qualify as non-financial entities (NFEs), making the non-reporting FI categories obsolete.
Additionally, the non-reporting FI exceptions for Swiss non-profit associations and foundations will no longer be available. The Global Forum concluded that no similar categories exist under the OECD standard, and associations and foundations that classify as FIs qualify as reporting FIs. Affected entities need to comply with the new account opening requirements for reporting FIs as of 1 January 2021. For pre-existing accounts (i.e. accounts maintained on 31 December 2020), FIs can benefit from transitional rules and will need to carry out due diligence by 31 December 2021 (for high value individual accounts) or 2022 (for other affected accounts). Further, affected entities will need to register with the Swiss Federal Tax Administration by 31 December 2021 and the first reporting (either with information about reportable accounts or a nil return) will be due on 30 June 2021.
Removal of certain Swiss-specific excluded account categories
Country-specific excluded account categories must have “substantially similar characteristics” as the ones under the OECD standard. The Federal Council’s explanatory report states that the Global Forum concluded that accounts held by Swiss non-profit associations and foundations do not demonstrate enough similarities, and therefore these categories of excluded accounts will be repealed. The same applies to accounts that would qualify as excluded accounts under the laws of the account holder’s country of tax residence.
Based on the transitional rules included in the amended CRS Ordinance, FIs maintaining affected accounts will need to review these by 31 December 2021 (for high-value individual accounts based on the account value on 31 December 2020) or 2022 (for other affected accounts).
The Global Forum also recommended repealing the exclusion for e-money accounts, however, this has not found its way into the consultation draft because of ongoing discussions at the OECD level to permanently exclude such accounts from the scope of CRS.
Mandatory collection of self-certifications upon account opening
Under the current Swiss CRS implementation, it is theoretically possible for FIs to open accounts without a self-certification. The Federal Council’s explanatory report mentions that the Global Forum criticized the lack of an explicit requirement to obtain a self-certification upon account opening, and Switzerland will incorporate such an explicit requirement. As of 1 January 2021, a FI must collect a self-certification before the account opening and must validate it (including by performing a reasonableness test of such self-certification) at the latest within 90 days.
The generally accepted exception from collecting self-certifications for entities whose non-reportable status can be determined based on information on file or publicly available remains valid. The amended CRS Ordinance provides additional exceptions where a self-certification does not need to be collected on day 1, specifically for policy holder changes in relation to insurance of another life and for court-ordered changes to the account holder. In these cases, a FI must collect and validate a self-certification within 90 days of the account opening.
Further, the relief from blocking new accounts missing the necessary taxpayer identification numbers (TINs) will be repealed. Instead, there will be an explicit requirement for FIs to block or close accounts after 90 days if no self-certification including all necessary information (e.g. a TIN if required). Additionally, the option to extend this to up to one year in exceptional circumstances has been removed.
For accounts opened between 1 January 2017 and 31 December 2020 where no TIN was obtained on the self-certification, the transitional rules require that reasonable efforts are made to obtain the missing TIN.
Other minor changes
In addition to the substantial changes mentioned above, certain changes are envisaged that should only have a small impact on the industry, including:
- References to amounts in Swiss Francs will be changed to US Dollars.
- When applying the residence address test, Swiss FIs will no longer be allowed to rely solely on the address on Forms A.
- An explicit requirement to retain documents for 5 years will be included. This has limited practical impact, due to the already-existing 10-year retention period under the Swiss Code of Obligations.
- The existing practice regarding the registration requirements for trustee-documented trusts will be incorporated in the CRS Law and Ordinance.
- The authority to suspend the exchange of data with partner jurisdictions if they do not meet the requirements of confidentiality and security will be delegated to the Competent Authority.
- Minor linguistic adjustments will be made to the Italian and French versions of the CRS Law and Ordinance in order to align them with the German text.
- More restrictive requirements for capital payment accounts to be excluded accounts.
We see that the Swiss Federal Council is eager to meet the international standards on transparency and exchange of information, and thereby avoid appearing on the OECD black list of non-cooperative countries. The Federal Council’s explanatory report indicates that with the amendments, all recommendations of the Global Forum – except the one regarding e-money accounts – will be implemented.
The repeal of certain categories of non-reporting FIs and excluded accounts may have significant impact on the industry. FIs that previously classified as non-reporting will need to implement due diligence processes, potentially report on their account holders or at least prepare to file nil returns to the Swiss Federal Tax Administration on an annual basis. According to the Federal Council’s explanatory report, this will affect approximately 1’000 Swiss foundations and it is estimated that they will each face implementation costs of 5’000 to 10’000 Swiss Francs and additional annual costs depending on the tax residence of the beneficiaries. Further, reporting FIs will need to prepare for the review of accounts that are no longer excluded, amend their account opening processes to ensure a self-certification is collected where no exception applies and potentially remediate legacy cases.
In this context, the transitional rules and timeline are definitely helpful to spread out the practical impact on the industry. Nevertheless, affected financial institutions should consider whether certain processes can be amended immediately to reduce the potential remediation efforts and should plan for potential IT system (client database and reporting engines) amendments to cope with the upcoming changes.
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