The Swiss commodities sector: What’s new and what’s left to do?

in Commodities Trading, 19.01.2017

Taking strong measures to combat corruption and increase transparency are just some of the steps Switzerland is taking to ensure its commodities sector remains competitive. Compliance with the Corporate Tax Reform III (CTRIII) is just one of the steps companies must take to make sure it stays that way.

Although issues relevant to the commodities sector received less attention on the international stage last year, inside Switzerland it’s an important industry and area of national focus. On 2 December 2016, the Federal Council approved the Interdepartmental Platform for Commodities’ third report on the sector. Assessing the progress achieved across all 17 recommendations made in the Platform’s background report published in August 2015, the report focused on the following areas: local business environment, market transparency and corruption, taxes as well as reputation risks.

Highlights on the progress achieved and further steps to be made in each of these key areas include the following:

Business environment

As a small country, Switzerland’s general business environment – namely the stability of its politics, economy and legal structures – must be conducive not only to attracting new companies but also to remaining a top business location for those already based here. The main drivers behind Switzerland’s attractiveness as a business location are the bilateral agreements with the EU and the new CTRIII. Considered to be a game changer, CTRIII is particularly important since multinational trading companies are often subject to special tax regimes and non-compliance with international standards puts their access to such regimes at risk.

Transparency

On 12 May 2016, the UK government hosted a international anti-corruption summit in London addressing countries around the globe participating including Switzerland and international organisations to overcome corruption which is viewed to be in the heart of a lot of the worlds problems. The closing communication signed by all participating countries highlighted the importance of transparency in the market. Additionally, Switzerland has declared it will expand opportunities for increasing transparency in the commodities sector.

With the implementation of the Financial Market Infractructure Act, Switzerland adopted rules similar to the European Market Infrastructure Regulation (EMIR) and the Dodd Frank Act administered in the EU and US respectively. FINMA has been designated to issue guidance and effective dates for transition using the EU’s timeline as communicated within the regulatory notification given in January 2016.

As it relates to anti-money laundering, the last part of the improved measures, based on the revised recommendations of the Financial Action Task Force (FATF) took effect on 1 January 2016 and help to further improve Switzerland’s success in combating money laundering. Together with other measures to fight corruption such as the Extractive Industries Transparency Initiative (EITI), which seeks to increase transparency in regards to financial flows and economical ownership – it’s expected that transparency will continue to improve over the next few years.

Corporate and governmental responsibility

Switzerland continues to grow its investment in voluntary principles (VP) for security and human rights in the countries within which commodity trading companies mainly operate.

Along with important players entering the VP initiative, the Swiss government follows and supports the implementation of these principles through such companies by conducting on-site visits to mining projects as well as fostering the dialogue between companies and society.

Development policy

Based on the positive results achieved while managing the IMF’s Topical Fund on Managing Natural Resource Wealth, Switzerland has renewed its commitment by making another contribution of CHF 7 million towards the total budget of CHF 30 million. The initative aims to support developing countries with a wealth of raw material deposits to manage the macroeconomic challenges they face as a result of extracting these raw materials.

Double taxation agreement and transfer pricing

In addition to CTRIII, Switzerland signed several Tax Information Exchange Agreements (TIEA) with other countries. It also increased the exchange of information as a result of the growing number of double taxation agreements with emerging and developing countries, implemented new tools on information requests and responded to ad-hoc information requests in line with OECD recommendations with the ultimate aim of best facilitating the ever increasing exchange of information on tax matters.

Reputational risks

In the past month, the focus of public discussion shifted away from transparency and corporate governance towards low market prices and the challenging market environment. Nevertheless, Switzerland considers transparency a key factor to reduce and avoid reputational risks in the commodities sector going forward.

Dialogue with non-governmental actors and the interdepartemental platform

Within the government, the Interdepartemental Platform for Commodities is leading the process. The different federal departments involved in the sector meet regularly under the lead of the State Secretariat for International Financial Matters (SIF) and/or State Secretary of Economic Affairs (SECO) to exchange information and to assess the current status.

Conclusion

In order to meet the upcoming challenges facing the commodities industry, companies will have to ensure they are in compliance with both the EU and the Swiss regulations that impact this sector including enterprise risk management tools. Furthermore, companies should stay on top of the challenges imposed by CTRIII, BEPS and other tax compliance matters. The next report will be due in November 2018. It will take a new look at the situation of Swiss commodity sector, with a focus on competitiveness, integrity, and environmental concerns, as well as other areas. In other words, Switzerland will continue to focus on the commodities sector in the future.

 

 

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