Switzerland - Baker & McKenzie

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EMEA Legal Insights Bulletin
Spring 2013
Switzerland
Warranty periods and obligations face Swiss shake-up
Iris Reardon-Kofmel reviews the recently implemented amendment of the Swiss Code of Obligations.
On 1 January 2013, the new Article
210 of the Swiss Code of Obligations,
which deals with the limitation
period of warranty claims in matters
of sale of movable goods, came into
effect.
… agreements aimed
at limiting the warranty
obligations are deemed
void, when the three specific
conditions are met…
As a result, warranty claims become
time-barred in two years (as opposed
to the one-year period of limitation
under the former provision) following
the delivery of the product to the
buyer.
An additional important change,
which was introduced for consumer
protection reasons, concerns
the possibility of the limitation or
exclusion of the warranty obligation
by the seller. In principle, the Code
of Obligations stipulates that the
warranty obligation may be excluded
or limited provided that the seller
has not fraudulently concealed the
failure to comply with warranty from
the buyer.
Nevertheless, the Code now states
that agreements aimed at limiting
the warranty obligations are deemed
void, when the three following
conditions are cumulatively met:
48 | Switzerland
• the agreement provides that the
action for warranty becomes
time-barred in less than two
years (in case of the sale of
used products, if the warranty
becomes time-barred in less
than one year);
• the product is intended for the
buyer’s personal use; and
• the seller acts in the context
of his or her commercial or
professional activity.
The new Code does not contain any
specific transitional rules for which
reason the general transitional rules
of the Final Title of the Swiss Civil
Code are applicable.
Under these provisions, if the sales
contract was entered into under
the former warranty provisions but
the product was delivered to the
buyer after the entry into force of the
amended Code of Obligations, the
new two-year warranty obligation
applies.
Therefore, the transitional rule
applies only in cases where the
product was delivered to the buyer
prior to 1 January 2013. In such
circumstances, the period which
has expired under the former law
is not taken into consideration
when calculating the new two-year
limitation period. The new limitation
period, which replaces the former
one-year rule, starts to run as of 1
January 2013.
It should be noted, however, that the
transitional rule only applies if the
(former one-year) limitation period
has not expired prior to the entry into
force of the new Article 210 of the
Code of Obligations.
… warranty claims become
time-barred in two years…
So, for example, in the case where
a contract for the purchase of
a computer was concluded in
November 2012 and the computer
was delivered to the buyer in
January 2013, the warranty claims
are governed by the new two-year
limitation period. The transitional
rule is not applicable to this case.
If a product was delivered to the
buyer in July 2012, the new two-year
limitation period begins on 1 January
2013, which will expire on 1 January
2015. Thus, in accordance with the
transitional rules, the period of time
between July 2012 and January
2013 is not taken into account
for calculating the new two-year
limitation period.
Finally, say a product was delivered
to the buyer on 30 November 2011,
the buyer’s warranty claim becomes
time-barred on 30 November 2012.
Thus, the entry into force of the new
two-year period of limitation is not
relevant in this case.
________
Iris Reardon-Kofmel (Geneva)
Tel: +41 22 707 98 00
[email protected]
EMEA Legal Insights Bulletin
Spring 2013
New accounting law delivers uniform regime
The long-awaited new Swiss accounting law entered into force on 1 January 2013. Swiss companies now have two
years to fully meet its requirements. Rémy Bucheler reports.
Switzerland’s new accounting law
is a complete modification of the
Swiss Code of Obligations relating to
accounting issues. While the previous
legislation was spread between very
general provisions applying to every
company and some more specific
ones contained only in the limited
liability company law, the revised
legislation now establishes a uniform
regime for all companies. The
requirements only vary on the basis of
the activity of the company, and not its
legal form of organisation.
… reconciles historic
principles (notably
cautiousness) with the
modern “true and fair view”
approach...
subject to full regular auditing,
must maintain complete
accounting books. These books
must include the balance
sheet, the income statement,
and the notes to the financial
statements.
• “Big” companies, which are
subject to full regular auditing,
must maintain complete
accounting books and disclose
additional information in
the notes (such as a risk
assessment, R&D activities,
prospects of the company). The
companies subject to full regular
auditing are those that exceed
two of the following thresholds
during two years: CHF20 million
of total assets; CHF40 million of
annual revenues; or 250 fulltime jobs on an annual average.
Key details
The new Swiss accounting law
tries to reconcile historic principles
(notably cautiousness) with the
modern “true and fair view”
approach. The law is still somewhere
in between these two concepts.
The new law defines three levels
of requirements, each depending
on the economic importance of a
company:
• “Very small” companies with
an annual revenue of less than
CHF500,000 are not concerned
by the legal provisions. They
must only keep a proper record
of their revenues and expenses,
but not necessarily in the form of
complete accounting books.
• “Small to Medium” companies,
with an annual revenue
exceeding CHF500,000 but not
A characteristic of Swiss accounting
law is the relatively large allowance
for hidden reserves. Hidden
reserves are created when a
company recognises excessive
expenses or minimises profits.
Swiss law expressly authorises such
accounting manoeuvres which are
clearly forbidden by international
standards such as US Generally
Accepted Accounting Principles and
International Financial Reporting
Standards (IFRS).
It is therefore still acceptable to
depreciate an asset according to tax
rules and stick to them, which can
lead to an economically profitable
asset appearing for a value of zero
in the financial statements. The
law further explicitly states that
accounting provisions do not have to
be released when the cause of the
provision is extinct.
The new law explicitly takes into
account the growing importance
of financial accounting standards.
Until 2013, the only Swiss companies
required to present their financial
statements according to a financial
accounting standard were listed
companies as the requirement came
from the Swiss exchange.
… the new law explicitly takes
into account the growing
importance of financial
accounting standards…
Now, some companies have a legal
duty to establish their statements
according to a financial accounting
standard; these are listed companies,
cooperative societies with at least
2,000 members and foundations
subject to full regular auditing.
Five (international) standards
are accepted: the IFRS, the
International Financial Reporting
Standard for Small and Mediumsized Entities (IFRS for SMEs),
the national Swiss GAAP RPC, the
United States Generally Accepted
Accounting Principles (US GAAP)
and the International Public Sector
Accounting Standards (IPSAS).
Each company has full freedom
of choice, provided the conditions
stated in the chosen standard itself
are met.
Financial intermediaries (banks,
securities traders, funds) regulated
by Switzerland’s financial markets
supervisory authority, FINMA, must
comply with specific accounting
prescriptions of the regulator. In this
Switzerland | 49
EMEA Legal Insights Bulletin
Spring 2013
case, such regulations are considered
as acceptable accounting standards
with regards to accounting law.
an explanation of the rules applied
in the notes in order to comply with
Swiss law.
Finally, the new law also regulates
the establishment of consolidated
financial statements. Each company
controlling one or more companies
has the obligation to establish
financial statements, unless the
group as a whole does not meet
the requirements for full regular
auditing (CHF20 million of total
assets; CHF40 million of revenues;
250 full-time jobs).
Tax consequences
The consolidated statements shall,
as a general rule, be established
according to the provision of an
accounting standard (each one of
the five abovementioned standards
is acceptable). However, the new law
does not insist on this requirement
for every company.
Apart from listed companies
and other “sensitive” cases, the
consolidated financial statements
must only be established according
to the principle of regularity with
The tax consequences of the new
accounting law were the centre
of many political discussions. The
revision was not to cause any tax
implications.
… new accounting law is
therefore essentially neutral
with regards to tax issues…
The Swiss Federal Council initially
intended to allow a company to
establish its financial statements
with reference to an accounting
standard only. Such a decision
would however have meant adopting
the true and fair view approach,
which contradicts directly the Swiss
acceptance of hidden reserves. This
is why this provision was eventually
abandoned.
The new accounting law is therefore
essentially neutral with regards to
tax issues.
The new Swiss accounting law, despite
its full revision, remains in line with its
historic conception: it is not really hard
to follow and to apply. Its requirements
are easily met and much freedom is
left to each company.
However, the new law was
necessary in order to monitor the
way companies are managed. Even
if the new law is not particularly
demanding, the provisions
now assess phenomena such
as accounting standards and
consolidated financial statements.
Even if the rules are light, they now
exist, which has the merit of at least
setting some basic standards.
________
Rémy Bucheler (Geneva)
Tel: +41 22 707 98 00
[email protected]
Highest Swiss court strikes down offshore finance branches
The Swiss Federal Supreme Court recently denied treatment as a Permanent Establishment to a foreign finance
branch which a Swiss corporation operated in the Cayman Islands. Robert Desax and Mario Kumschick consider the
ramifications.
… if a Swiss company has
established a PE abroad,
income attributed to such
a PE is exempt from Swiss
taxes, irrespective of whether
there is a double tax treaty in
place or not…
The case concerned a Swiss group
that had outsourced its group
financing to a Cayman branch of a
Swiss affiliate. The Cayman branch
50 | Switzerland
had hired four persons who each
worked one day per week and
were paid annual salaries of up to
USD20,000. The group claimed that
the financing activities constituted
a foreign permanent establishment
(PE) of the Swiss company and that,
therefore, the profit resulting from
the financial activities should be
exempt from Swiss taxation. The
cantonal tax authorities had granted
an advance tax ruling confirming
that the Cayman finance branch
indeed constituted a foreign PE.
Thus, they allocated the relevant
financial assets (in particular loans)
and income (mainly interest) to such
foreign PE, and, based on Swiss
domestic law, exempted it from
Swiss taxation. The Swiss federal tax
administration (SFTA) did not accept
this assessment and requested a
decision that for federal tax purposes
the branch’s income be taxed in
Switzerland.
Pursuant to domestic Swiss tax laws,
if a Swiss company has established
a PE abroad, income attributed to
such a PE is exempt from Swiss
taxes, irrespective of whether there
is a double tax treaty in place or not.
Swiss domestic tax law defines a PE
as a fixed place of business through
EMEA Legal Insights Bulletin
which an enterprise wholly or partly
carries out its business activities.
… the Court decided that mere
financing functions abroad with
part-time employees do not
necessarily create a business
activity constituting a PE…
In October 2012, the Swiss Federal
Supreme Court stated that in
principle the aforementioned PE
definition must be the same in
inbound and outbound situations. Yet
it also held that, especially in cases
which may result in zero taxation, the
Swiss domestic tax rules in question
had to be interpreted more strictly
and so generally favour Switzerland’s
taxation right. In other words, under
Swiss domestic tax law, it should
be harder for a Swiss company to
prove the existence of a foreign
PE than for a foreign company the
existence of a Swiss PE, although the
same domestic PE definition would
primarily be applicable.
Thus, the Court essentially
confirmed the SFTA’s view. It held
that in the case at hand, the overseas
financing activities did not reach
the level of business substance
required for a foreign PE to be
recognised. The company’s lean
structure in Cayman (especially the
low-cost local workforce) and thus
the little economic value created in
Cayman were contrasted with the
considerable financial assets and
the related income involved. It may
be added that the Cayman branch’s
main purpose was the financing of
Swiss group companies (which would
claim full tax deduction for interest
paid). As a consequence, the entire
profit resulting from the financing
activities were subject to Swiss
corporate income taxes.
Spring 2013
Key implications
In the case at hand, the Court decided
that mere financing functions
abroad with part-time employees
do not necessarily create a business
activity constituting a PE. It must
be mentioned that is not clear what
professional qualifications the local
personnel had and what their daily
business was in the present case. To
be accepted as offshore structures it
is probably safe to say that a foreign
PE should have highly qualified
workforces available who are able to
perform value-adding, financial tasks
of some significance for the group.
Especially in cases involving low- or
no-tax jurisdictions where there are
no bilateral tax treaties, companies
must ensure they adequately staff
their foreign branches and that such
entity has some decision-making
power.
… the Court held that
the Swiss federal tax
administration is only bound
by a ruling granted by a
cantonal tax administration if
it had initially been involved in
the process of granting it…
In this context, the Court’s
asymmetric interpretation of the
domestic PE provision (i.e., that it
takes more to accept a foreign PE of
a Swiss company than a domestic PE
of a foreign company) is somewhat
surprising given the fact that Swiss
domestic tax law does not generally
take a “subject to tax” approach
in cross-border situations, even if
“offshore” jurisdictions are involved.
Remarkably, the Court did not decide
the matter in the light of anti-abuse
considerations (as it deemed it not
necessary given the outcome of
the case). However, it is interesting
to note that the judges did not all
agree on this point, and that the
minority apparently submitted that
there was indeed a PE but that the
structure itself was of an abusive
nature. Consequently, it might be
advisable that taxpayers analyse their
offshore structure not only under the
substance requirements, but also in
the light of anti-abuse considerations.
Finally, in its decision the Court dealt
with the advance tax ruling which
had been granted by the cantonal tax
authorities and which was overruled
by the SFTA. The Court held that the
SFTA is only bound by a ruling if it had
initially been involved in the process
of granting it (although the cantonal
tax authorities are the competent
authority in charge of levying
corporate income taxes, including the
federal income tax). This aspect may
typically bear considerable risks for
Swiss taxpayers: experience shows
that, frequently, certain questions
are exclusively submitted to a
cantonal tax authority without being
discussed with the SFTA. As Swiss
courts routinely confirm in their case
law, a particular Swiss authority is
in principle not bound by a decision
rendered by another authority. Thus,
having received the approval from
a cantonal tax authority in a given
case is no guarantee that the SFTA
will share the same view and it may
well be that the SFTA will intervene
subsequently. Therefore, in specific
cases it might be advisable to involve
all relevant authorities from the
beginning.
(Judgment of the Swiss Federal
Supreme Court of 5 October 2012,
2C_708/2012)
________
Robert Desax (Zurich)
Tel: +41 44 384 14 14
[email protected]
Mario Kumschick (Zurich)
Tel: +41 44 384 14 14
[email protected]
Switzerland | 51
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