Answers to the 5 most frequently asked questions!
The reform projects in the tax area are piling up: Corporate Tax Reform III, Tax Criminal Law Reform, Withholding Tax Reform and the introduction of an automatic exchange of information. Some even speak of a “tax tsunami” for the financial industry and your clients. Many elements of these reforms are already tax reality in countries such as Germany, the UK or Austria. But what are the concrete implications for collective investment schemes in Switzerland? Find the answers to the 5 most frequently asked questions below:
1. What is the impact of the paying agent principle of the withholding tax reform?
The paying agent principle will mean that the domestic fund management company as debtor will no longer deduct withholding tax, but the bank as paying agent. As a result, foreign funds will now also be subject to withholding tax and in this respect will be treated in the same way as domestic investment funds. However, a prerequisite for the release of the fund management from the withholding tax obligation is that it can present a Swiss Fund Tax Reporting for the paying agent. For this purpose, certain income shares must be paid out via a separate coupon or reported separately in the case of reinvestment. Otherwise, the fund management company remains liable for tax as the debtor. It should be noted that the debtor principle continues to apply to income from domestic shares received by collective investment schemes. Accordingly, domestic investment income should be reported net after deduction of withholding tax. It is unclear how the paying agent will withhold withholding tax in the case of reinvesting funds. Since banks in this case do not pay out money to investors until fund units are sold, withholding tax is not levied internationally on cumulative income until this point in time.
2 What does the planned value appreciation principle mean for collective investment schemes?
While the previous debtor principle was accompanied by maturity taxation, the paying agent principle leads to taxation of the increase in value. According to the draft law, in the future also “the income accrued or capitalized upon the sale, redemption or redemption of these securities” shall be subject to withholding tax. Accrued or capitalized income paid at the time of acquisition may be deducted. According to the FTA, this leads to the fact that fund management companies would have to publish a daily “interim profit” comparable to the German Fund Tax Reporting. Admittedly, the legislator states in its explanatory notes that the recording of accrued income would be new. On closer inspection, however, fund investors already pay tax on the income accrued up to the time of the change of ownership. Since the income accrued up to that point cannot be deducted for tax purposes at the time of purchase, this leads de facto to a lump-sum advance taxation of accrued income in the event of a later sale.
3 What does the Corporate Tax Reform III mean for investment funds?
A fundamental innovation of the Corporate Tax Reform III for private investors would be the taxation of capital gains from securities. However, its introduction is highly controversial. In addition, the partial income procedure is to be introduced on dividends from shareholdings of less than 10% or without a minimum investment (so-called “free float shares”). Due to the transparency principle in fund taxation, these would now have to be reported separately in the Swiss Fund Tax Reporting.
4 What opportunities are there for providers of domestic investment funds?
The Swiss fund industry is not unhappy about these changes. After all, the inclusion of foreign funds in the withholding tax leads to equal treatment with domestic investment funds. The previous discrimination will be abolished. In the case of reinvestment funds, the withholding tax will no longer be levied by the fund management companies at the source, but only when the bank pays out the tax, when investors sell their units. This leads to welcome liquidity and compound interest effects for domestic fund providers, which can lead to international competitive advantages.
5 What are the risks for fund providers and representatives?
The greatest impact will be on foreign investment funds or their representatives in Switzerland. Subjecting them to the time-bound withholding tax will probably mean that they will have to comply with the same strict deadlines for Swiss Fund Tax Reporting as Swiss funds. In addition, the reporting will have to record new categories, e.g. domestic net dividends subject to withholding tax, foreign dividends subject to the partial income procedure. The introduction of daily tax indicators. Foreign providers are already used to this tax “attention to detail” in German, UK or Austrian Fund Tax Reporting. Fortunately, the fund industry will have a period of about 2 years to implement these changes. Swiss Fund Tax Reporting for investment funds will thus become a quality feature. Representatives of collective investment schemes as well as their distributors should therefore increase their due diligence and ensure high quality Swiss Fund Tax Reporting to avoid liability risks. Do you have any questions? – We look forward to hearing from you!
Do you have any questions? – We look forward to hearing from you!
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