Following a review conducted by the Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum), the Swiss Federal Council initiated a consultation on a revision of the Swiss Federal Act and Ordinance (referred to below as the “proposed regulations”) on Automatic Exchange of Information in Tax Matters (“AEOI”). The aim of the revision is to implement the recommendations made by the Global Forum. The amendments are currently expected to be effective from 1 January 2021 (there are various transitional rules for each proposed measure). The consultation period lasts until 12 June 2019.

The following provides an overview of the proposed regulatory changes.

Under the proposal, the classification of certain entities for AEOI purposes would be expected to change as follows:

• Swiss associations (Vereine) and foundations (Stiftungen) would no longer be treated as non-reporting financial institutions (FIs). A detailed analysis would be required to confirm the classification as “Reporting FIs” going forward.
• Swiss condominium owners’ associations (Stockwerkeigentümergesellschaften) and co-ownership associations (Miteigentümergemeinschaften), currently treated as “Non-reporting FIs” would be treated as Non-Financial Entities (NFEs).

The classification measures appear to be the most significant change in the proposed amended regulations. Associations and foundations newly qualifying as Reporting FIs would have to register with the Swiss Federal tax administration, implement due diligence processes, and report any reportable accounts.

The following accounts are exempt under the existing regulations. In the proposed regulations, exemptions would no longer be available for:

• Accounts held by certain Swiss associations (Vereine) and Swiss foundations (Stiftungen).
• Certain capital contribution accounts (Kapitaleinzahlungskonten). Under the proposed regulations, the exemption of those accounts would be limited to a maximum period of 90 days, after which the account would need to be documented (and potentially reported) according to the normal AEOI procedures.
• Accounts that are exempt based on the applicable regulations in the jurisdiction in which the account holder is resident.

Swiss FIs would be required to review these accounts to determine whether any of those account holders, or their controlling persons, are reportable under AEOI. Additional controls/monitoring may be required with regards to capital contribution accounts.

Under the existing regulations, it is theoretically possible to open a new account without a self-certification, provided the self-certification is obtained within a period of 90 days. Further, it is possible for an FI to accept a self-certification if the only missing information on the form is the TIN.

The proposed regulations would clarify that:

• For each newly opened account, a self-certification including a TIN (except in specific circumstances) would be required before the account can be opened.
• When the FI can clearly determine based on publically available information that an entity account is non-reportable, a self-certification would not, however, be mandatory. In addition, an account could only be opened without a self-certification in exceptional circumstances (i.e., insurance on another life with change of insuree due to legal succession, change of account holder due to court or official order), in which case the self-certification would need to be obtained and verified within a maximum of 90 days (the possible extension up to one year under the existing regulations would be repealed). When a self-certification is not provided within 90 days, the Swiss FI would be required to close or freeze the account until the documentation has been provided.

Under the proposed regulations, Swiss FIs would need to review their account opening procedures to determine that they are in line with the amended requirements. Specifically, the documentation required for AEOI purposes would need to be collected upon opening of a new account, and appropriate steps would need to be taken when the documentation cannot be obtained. When an FI has opened new accounts between 1 January 2017 and 31 December 2020 for which a self-certification was accepted without a TIN, the FI would need to make reasonable efforts to obtain those TINs within two years.

The proposed regulations would provide that trustee documented trusts need to be registered on the Swiss tax authorities’ AEOI portal, including “TDT” in their name. The name of the trust, including the suffix “TDT” would also need to be included in the trust’s CRS reporting.

The new provisions would only formalize the already existing common practice in the Swiss market.

Other new provisions in the proposed regulations include:

• A mandatory record-retention period of five years for Swiss FIs
• Mandatory denomination of applicable account value thresholds in U.S. dollars (not in Swiss francs)
• Certain changes to the residence address test for pre-existing accounts, clarifying that the residence address test could only be applied if the FI is in possession of supporting documentary evidence

Swiss FIs will need to review their policies and systems to determine that they are complying with the amended record-retention and currency requirements. The amendments do not apply retroactively.

Read a March 2019 report prepared by the KPMG member firm in Switzerland