The AEoI Guidance was also revised when the Swiss AEoI Act was amended. In particular, the reporting obligations for indirect distributions were clarified, which results in trusts having to possibly report additional persons under the AEoI in the future.

Various amendments to the Swiss AEoI Act and the corresponding Ordinance came into force on 1 January 2021. While most of the amendments are of little relevance to trusts, trustees of trusts that qualify as investment entities must be aware of the fact that it is now mandatory for reportable persons to include their tax identification number (TIN) in their self-certification. The corresponding provision in the AEoI Act, which is designed for banks, stipulates that an account must be blocked for inflows and outflows if no TIN is provided within 90 days of the account opening.

For trusts that qualify as investment entities, this specifically means that distributions to reportable persons are no longer possible after 90 days without the beneficiary’s TIN being available. However, this stricter requirement to obtain a TIN does not apply to the equity and debt interest holders documented before 1 January 2021. Likewise, no TIN is required if the state of residence of the reportable person does not issue TINs.

In the following, we will discuss some specific amendments to the Swiss AEoI Guidance that will impact which persons have to be reported by trusts that qualify as investment entities.

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 1.3.2.3.3 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.

The revised Guidance still does not address the question of the extent to which a reporting is required if beneficiaries are allowed to use properties owned by the trust without paying a fair market rent. Such and similar situations must be examined on a case-by-case basis to determine whether a CRS reporting is required.

The above statements only apply to trusts that qualify as investment entities. In contrast, banks never have to report distributions concerning trusts that qualify as passive NFEs, which is why such matters are not reportable. Persons involved in trusts must therefore be aware that the qualification as investment entity may lead to increased reporting obligations, depending on the circumstances.

In previous version of the Guidance, it was stated that trustees can be treated as corporate bodies and were therefore not subject to the CRS reporting. In contrast, the revised Guidance now stipulates that trustees are also required to be reported.

This amendment to the Guidance should have little practical relevance, as the trustees are usually resident in the same country as where the trust is resident for CRS purposes and/or qualify as investment entities themselves (non-reportable persons).

While the OECD has always taken the view that protectors must be reported, regardless of whether they effectively control the trust, this was unclear under the old Guidance.

This has now been clarified as follows: "Persons subject to reporting are settlors, trustees, beneficiaries, protectors as well as other natural persons who actually control the trust." In other words, protectors always have to be reported, while only the other natural persons have to have actual control for being reportable persons. This does not necessarily mean, however, that all protectors must be reported with the full trust value.

Even though the AEoI/CRS has been in force for several years already, persons involved in trusts nonetheless must regularly check which persons and amounts are subject to reporting. Not only indirect distributions have to be considered - it must also be reviewed regularly which persons need to be informed with the trust’s total value. The trustees must also be aware of the reporting obligations of the account-holding banks if the trust no longer qualifies as an investment entity but as a passive NFE. Reporting obligations may differ significantly depending on the circumstances. For example, banks never have to report direct or indirect distributions. Instead, they always have to report the total bank account balance regarding all reportable controlling persons.

For more, also read: Tax Transparency (PDF)