BEPS: Swiss Act on Country-by-Country Reporting

in Tax, 25.04.2016

On 13 April 2016, the Swiss Federal Council initiated the consultation on the multilateral agreements on the exchange of country-by-country reports and the federal act required for its implementation. According to this timeline, a first exchange will happen in 2020. Earlier exchange could take place on a voluntary basis.

BEPS Implementation Hurtling Forward

The implementation of BEPS, and in particular those actions of the comprehensive action plan (CAP) agreed to become minimum standards, is advancing fast. As at early April 2016, at least 20 countries had either fully enacted (12) or at least published draft acts (about 8) on the Country-by-Country Reporting (CbCR)

Among those that have already enacted CbCR are Denmark, France, Italy, Ireland, the Netherlands, Portugal, Poland, Spain, UK, Australia, Japan and Mexico. For Germany, China, the US, India and some others, draft legislation has been issued and should be approved soon.

While most countries follow the OECD guidance on BEPS Action 13 with few deviations, if any, by 12 April 2016, the EU was discussing the general publication of CbC Reports for multinationals within the EU, a quite far-reaching extension of the action and its application. There is strong support for this in Brussels, and it is quite likely that EU companies, including Swiss companies, will have to observe what effect such publication could have on their global competitiveness.

But let’s be pragmatic and concentrate on current aspects related to the implementation of BEPS, in particular in Switzerland.

Swiss CbCR Legislation

The Swiss Federal Act on the International Automatic Exchange of Country-by-Country Reports of Multinationals (the “ALBA – Gesetz”) has been out for consultation since 13 April 2016. The consultation will last until 13 July 2016.

The proposed Federal Act closely follows the proposition made by the OECD in its BEPS Action 13. For companies that have their ultimate parent company domiciled in Switzerland, the threshold for consolidated turnover for having to provide a CbC Report was set at EUR 750 million or above. This has been translated into CHF 900 million or above. It is estimated that if this threshold remains, about 200 Swiss-resident companies will be required to file their CbC Reports with the Swiss Federal Tax Administration (FTA).

Enacting and applying the CbCR in Switzerland

With or without referendum, it is likely that the CbCR act will come into force in 2018. That means Swiss companies will be required to file their CbC Reports on FY18 in 2019 in order for the FTA to be able to automatically exchange information with the countries concerned in the first six months of 2020. At first sight, the timeline might cause some headaches for Swiss multinationals as many countries where they have subsidiaries expect to receive CbC Reports already on FY16 data. The threat is that some countries (such as France, Italy, the Netherlands or Australia and Canada) will already apply their enacted CbCR acts and request the report from the local subsidiaries of the Swiss multinational, something that the negotiations at the OECD tried to avoid for many reasons, among others, confidentiality.

However, the Swiss draft of the CbCR act includes, with Article 29, a clause that allows the FTA to receive and submit CbC Reports for the years prior to 2018, hence allowing Swiss multinationals to provide their reports on a voluntary basis.

The time to act is now

Based on the briefly summarized developments, Swiss multinationals or more general companies with parent companies in Switzerland meeting the CbCR threshold of CHF 900 million annual turnover should prepare themselves for being technically able to prepare the CbC Report; but more importantly, they should understand the story it tells. With this, we mean how the receiving tax administrations in all countries concerned will interpret (correctly or not) the information received and contrast it to the story told by the Transfer Pricing Documentation when comparing the master file with the local file.

The message is clear: it is important to design the process to gather data and prepare the CbCR already for FY16. It is no luxury to already perform a “risk assessment” to understand areas that could be potentially cause difficulty in their interpretation already now and support these by using the free editorial section in the CbC Report templates (i.e. template 3). And last but not least, it is imperative to assess how the CbC Report aligns with the Transfer Pricing documentation for FY16 at the latest by means of comparing the master file and local file of the transfer pricing reports.

It is true that filing the CbC Report for FY16 with the FTA (on voluntary basis) or any other competent authority chosen will only be required by 31 December 2017, hence there is some time left. However, the to-be-reported facts and circumstances have to be finished by end of this year (i.e. FY2016), and so this should be seen as an excellent opportunity to fine-tune other things as well.

 

 

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