The FAQ of the OECD for some time now have stipulated that indirect distributions must also be reported. Until now, the Swiss AEOI Guidance did not explain any specifics in this regard. This has now been clarified with the help of three examples that show how trusts subject to CRS reporting obligations in Switzerland must report indirect distributions (section 22.214.171.124.3 of the Guidance):
- A is the beneficiary (without a fixed legal claim) of a trust. The trust does not make a direct payment to A, but instead pays the school fees of A's child. This payment constitutes a reportable distribution to A, even if the payment is not made to A but to the school.
- Same situation as in the previous example, but the trust makes the payment to an account of A's attorney to pay (on a fiduciary basis) the school fees. This payment constitutes a reportable distribution to A, even though the payment is not made to A but to his attorney.
- Same situation as in the first example, but A receives a loan from the trust at below market interest. The loan (i.e. the actual amount of the loan) does not qualify as a distribution because it does not encumber the assets of the trust. The difference to an arm's length interest rate, on the other hand, constitutes a reportable distribution to A. Should the loan be written off at a later date at the expense of the trust, this would also constitute a reportable distribution to A.
While the first two examples usually were already assessed in this way in the past, the reporting obligation of loans granted at non-arm's length conditions was controversial. The Guidance now clarifies that loans with a too low interest rate have to be reported to the extent of the difference between the market interest rate and the effective interest rate. However, they do not contain any explanations as to how the market interest rate should be determined.
The circular letters of the Swiss Federal Tax Administration on the interest rates for loans to related parties recognized for tax purposes could throw some light on the matter. These circular letters show the minimum interest rates that Swiss companies must charge on loans granted to related parties, so that no pecuniary benefits are triggered. For example, the minimum interest rate for 2021 is 0.25% for loans in CHF that are financed from equity capital, if no interest-bearing debt is given. Thus, it could be argued that no CRS reporting is required as long as these minimum interest rates are applied.