After the automatic exchange of information (AEoI) already entered into force between the EU member-states (excluding Austria) and in Liechtenstein on 1 January 2016, the AEoI will also follow in Switzerland in a few months’ time. Switzerland has already agreed with the EU for all EU member states as well as with Australia, Canada, Guernsey, Iceland, Isle of Man, Japan, Jersey, Norway and South Korea on a first exchange of 2017 data to be made in September 2018.
The Swiss Parliament approved the corresponding implementation act (AEoI Act) already in December 2015. After the publication of the draft AEoI ordinance in May 2016 and the draft AEoI guidelines on 3 August 2016, the legal bases for the AEoI are complete. The AEoI is actually based on the Common Reporting Standard (CRS), which means a worldwide standard has been created in regard to the AEoI. Nonetheless, some details remain unadressed. This is why the Swiss Federal Tax Administration in tandem with industry associations prepared comprehensive guidelines (“Wegleitung”) to the AEoI. These are meant to address implementation aspects that were left open in the CRS and explain how the AEoI is to be applied with the use of about 200 examples.
Guidelines could still be adjusted
The published version of the guidelines is only a draft, which is why it is possible that relevant aspects could still be adjusted or complemented prior to the AEoI’s entering into force. However, I expect few changes only. These could happen especially if the OECD should provide guidance deviating from the Swiss opinion in their AEoI Q&A or if the draft of the Swiss AEoI ordinance has to be amended.
In particular, this could be the case if the USA is no longer considered to be a “participating jurisdiction” in the final version (also see AEoI Ordinance: a step closer to implementing the AEoI). The reason for this potential development is that Luxembourg recently deleted the USA from its list of the participating jurisdictions. If Switzerland were to follow Luxembourg, Swiss banks would have to treat investment companies domiciled in the USA transparently, i.e. as Passive NFEs. In other words, the controlling persons of such legal entities would have to be reported to their relevant countries of residence.
Detailed rules for capturing asset management structures
In order to avoid circumventing the AEoI by using asset management structures (especially foundations, trusts and domiciliary companies) generally all natural persons involved in such structures are to be reported in their relevant countries of residence. The AEoI guidelines contains detailed explanations and examples of conditions under which the asset management structure has to report the controlling persons (because it is deemed an investment entity) and under which circumstances the account-keeping bank must report the controlling persons (because the structure qualifies as a Passive NFE). The guidelines also explain to what degree discretionary beneficiaries of trusts and foundations are captured by the AEoI. The rules could be summarized as follows:
(click table to enlarge)
In view of the fact that different reporting duties exist, persons who are involved in asset management structures should concern themselves with the details of how such structures are captured by the AEoI and the specific reporting duties as soon as possible.
The implementation of AEoI cannot wait any longer
All of the conditions for implementing the AEoI are given with the finalization of the draft of the AEoI guidelines. This is why banks should press ahead with implementing their AEoI projects in order to be ready for the AEoI by 1 January 2017. In doing so, they should make full use of the discretion available in the implementation (such as the treatment of discretionary beneficiaries mentioned above) in order to enable a most efficient and client-oriented implementation of the AEoI.
- Automatic Exchange of Information
- Voluntary Disclosures
- Impact of the AEoI on Wealth Management Structures
- Regulatory Horizon: Interactive overview of important regulatory topics in the financial industry