december 2013
www.bdo.ch
international
TAX UPDATE
DOMESTIC ANNOUNCEMENTS SWITZERLAND
As the current year comes to a close, we would like to inform you about the following domestic
changes on federal tax law that enter into force on 1 January 2014:
Lump-sum Taxation: Taxpayers which are subject to lump-sum taxation in Switzerland are faced
with higher tax bills from 2016 on. On 1 January 2014 the assessment basis for foreign wealthy
people increases to at least seven times the housing costs but at least CHF 400‘000 for the federal
income tax. Within two years, Cantons must also set a minimum amount for the assessment basis
at their discretion. The Federal Council believes that higher minimal amounts improve the acceptance for lump-sum taxation in Switzerland.
On the area of the value added tax (VAT), the following changes enter into force on 1 January 2014:
Introduction of the UID-code for VAT: The former VAT-code consisting of 6 figures will be
replaced by the new UID-code from 1 January 2014 on. Attention should be paid to the announcement process. An application of an UID-code doesn‘t imply VAT registration. This must be applied
separately.
Prolongation of the lower VAT-rate for the hotel sector: The period of the current VAT-rate of
3.8% in the hotel industry terminates at the end of 2013. To guarantee continuity in this sector, the
rate of 3.8% will be prolonged until 2017.
All gold investments are exempted from VAT: Revenues of gold bullions as well as other forms of
investments in gold are exempted from VAT in Switzerland. In order to avoid ambiguity, the current
regulation was adjusted to equate and exempt all types of gold investments from VAT. However,
personal items of jewelry such as gold chains and rings do not qualify as investments in gold. Revenues from trading with such products are still subject to VAT. Dear Reader,
We are pleased to send you our final 2013
International Tax Update on behalf of BDO
Ltd, Switzerland.
We begin this issue with a short overview
of modified tax law entering into force on 1
January 2014 and by the proceedings of the
third series of corporate tax reforms and the
introduction of FATCA followed by an update
on the recently signed Double Taxation
Agreements (DTAs) and Tax Information
Exchange Agreements (TIEAs). Finally, DTAs
with Portugal, Slovenia, Czech Republic and
Bulgaria will enter into force by 2014.
We wish you an interesting and pleasant
read…
Thomas Kaufmann
Partner, Head of International Taxation
BDO Ltd, Zurich
044 444 37 15
thomas.kaufmann@bdo.ch
International Tax Update
2
Third series of corporate tax reforms: Federal Council takes note
of consultation report
FATCA agreement between Switzerland and the U.S. enters into
force six months later
At its meeting at the end of October, the Federal Council took note
of the results of the consultation on the third series of corporate tax
reforms interim report. All cantons and the majority of the associations
consulted support its direction of impact. The project organisation will
work out a final report based on these results and will proceed proposals on the further course of action to the Federal Council.
In February, Switzerland and the United States signed the FATCA agreement, whose implementation takes effect on 1 January 2014. In July,
the US Department of Treasury announced that FATCA implementation
by foreign financial institutions would be postponed by six months.
This amendment lies within the authority of the Federal Council and assures Swiss financial institutions the same implementation deadlines as
financial institutions in other countries. The agreement was amended
by means of an exchange of notes. The amendment will enter into force
at the same time as the FATCA agreement.
The interim report published in May recommends the elimination of
the cantonal tax status in the event of substitute measure in order to
preserve Switzerland‘s attractiveness as a tax location. From an EUperspective, Switzerland should avoid a preferential tax rate on foreign
income (so-called „ring fencing“) because its consequence would be
an international non-taxation. Substitute measures must be based on
sound taxation principles or be in effect in at least one EU member
state. As far as it is required, cantons should also lower their corporate
tax rates. In order to strengthen Switzerland‘s attractiveness as a tax
location, additional measures are foreseen.
The steering body is of the opinion that the reduced tax receipts in the
cantons due to the reform should be subsidized by the Confederation.
The existing fiscal equalization should allow fair intercantonal tax competition even under a new tax framework.
The consultation of the cantons and associations after publication
of the interim report shows that the approach outlined is largely
supported. Opinions of the consulted participants divided concerning
measures to compensate for the adjustment burdens and the reciprocal
financing principles.
The project organisation is about to specify tax and fiscal policy measures of the corporate tax reform. At the same time, the dialogue with
the European Commission regarding changes in cantonal tax systems
will be continued. Based on the final report, the Federal Council will
initiate further steps. Therefore, the 28 EU member states accord the
EU commission to continue the tax dialogue with Switzerland. Concrete
solutions are expected by 30 June 2014.
DOUBLE TAXATION AND TAX INFORMATION EXCHANGE AGREEMENTS
(DTAs and TIEAs)
Federal Council adopts dispatch on three tax information exchange
agreements
The Federal Council adopted the dispatch on three tax information exchange agreements (TIEAs) with the Isle of Man, Guernsey and Jersey,
which will now be submitted to parliament for approval.
Tax information exchange agreements as well as double taxation agreements are instruments for concluding an administrative assistance
clause. Whereas DTAs primarily focus on avoiding double taxation and
therefore contain other material provisions, TIEAs regulate information
exchange upon request.
The three agreements signed on 28 August (Isle of Man), 11 September
(Guernsey) and 16 September (Jersey) need to be approved by parliament before they can enter into force. They are subject to an optional
referendum, although the cantons and the business associations expressed their support. Tax information exchange agreements with other
jurisdictions are currently being negotiated.
International Tax Update
Federal Council adopts dispatches on DTAs with Australia, Hungary
and China
Switzerland and Italy pursue negotiations on outstanding tax
issues
The Federal Council adopted dispatches on the DTAs signed with Australia on 30 July, Hungary on 12 September and China on 25 September.
After their submission to parliament for approval, they replace the
current valid agreements. All of the three agreements now contain
provisions on the administrative assistance in accordance with the internationally applicable standard. They also promote the development
of bilateral economic relations.
Switzerland and Italy held a further round of bilateral negotiations on
outstanding tax issues on 28 November in Rome. Deputies of both
countries intend to submit their proposals to their respective Government.
Aside from an OECD administrative assistance clause, the three
agreements provide for reductions in withholding tax in the case of
dividends, interest and royalty payments in the source state. A full tax
exemption has been reached in some areas. The agreements thereby
facilitate the activities of the export economy, promote bilateral investments and contribute to the prosperity of Switzerland and that of the
partner states. The cantons and the business associations support the
conclusion of the three DTAs.
- Revising the current double taxation agreement
- Regulation on undeclared assets in Switzerland held by Italian
taxpayers
- Taxation of future capital gains
- Existing „black lists“
- Market access
- Taxation of frontier workers
- Fiscal questions relating to the Italian enclave of Campione
Switzerland and France discuss bilateral tax issues of common
interest
On 5 November 2013, Switzerland and France commenced talks on
bilateral tax issues of common interest. Both parties agreed to continue
the dialogue. The first meeting in Zurich can be seen as the foundation
of the initiated tax dialogue announced by finance ministers of both
countries on 11 July 2013. Both parties have agreed to proceed with
regular exchanges on all tax issues of common interest.
Switzerland and Argentina initial new DTA
On 5 November 2013 Switzerland and Argentina initialed a new DTA
with respect to taxes on income and on capital. It replaces the former
agreement of 1997 which was denounced by Argentina on 16 January
2012. The new text fills the agreement vacuum and is in line with the
applicable international standard regarding the exchange of information upon request.
Since Argentina denounced the provisionally applied agreement of 1997
on 16 January 2012, there was no contract between the two countries.
The new text will now be filling the agreement vacuum. Before the
issue can be discussed bilaterally, the automatic exchange of information first has to become established as an international standard. Before
it can enter into force, it will be submitted to cantons and associations
concerned and then it will have to be approved by parliament in both
countries. The content of the agreement will be published at the time
of signing. The exchange of notes of 1950 concerning the taxation of
shipping and air transport companies will still apply until the new DTA
has entered into force.
3
In 2012, Switzerland and Italy pledged to find a solution to the following outstanding tax matters:
Further meetings have been announced in order to promptly present
concrete solutions shortly.
Entry into force of four revised double taxation conventions
Four double taxation agreements with respect to taxes on income and
on capital that Switzerland has concluded with Portugal, Bulgaria, Slovenia and the Czech Republic have come into force and are applicable
from 1 January 2014.
The protocol amending the double taxation convention between
Switzerland and Portugal came into force on 21 October 2013, the one
between Switzerland and Slovenia on 14 October 2013 and the one
between Switzerland and the Czech Republic on 11 October 2013. The
new convention between Switzerland and Bulgaria came into force on
18 October 2013. This is a total revision of the convention concluded
between the two countries in 1991. With the entry into force of the
new convention, the 1991 agreement will be repealed. However, it will
remain applicable for tax periods ending before 1 January 2014.
All agreements contain an administrative assistance clause in accordance with the OECD standard and will contribute to the further positive development of bilateral economic relations between Switzerland
and the countries concerned.
By the end of October 2013, Switzerland had signed 42 double
taxation agreements in line with the international exchange of
information standard, and 34 of these are in force.
BDO Ltd is one of Switzerland’s leading providers of auditing, accounting and consulting services. With 32 offices nationwide, our branch network is the most
extensive in the sector. For cross-border transactions, we can also draw on the support of the financially independent global BDO network. For more information about BDO Ltd, please visit www.bdo.ch.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot
be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained herein without obtaining specific
professional advice. Please contact BDO Ltd to discuss these matters in the context of your particular circumstances.
BDO Ltd, a limited company under Swiss law, incorporated in Zurich, forms part of the international BDO network of independent member firms.
© BDO Ltd, December 2013