07 June 2017 Issue 5 Jean-Luc Bochatay and Fabianne De Vos Burchart TEP

Standard-bearers

Jean-Luc Bochatay and Fabianne de Vos Burchart warn that there are risks to both under- and over-compliance with the Common Reporting Standard for Swiss institutions

Switzerland has implemented the Common Reporting Standard (CRS) in its domestic legislation. The CRS calls on participating jurisdictions to obtain information from their financial institutions (FIs) and exchange it with other jurisdictions on an annual basis.

The Automatic Exchange of Information Act (AEIA) and the Automatic Exchange of Information Ordinance, which both came into force on 1 January 2017 – as supplemented by the Guidance on the Standard for the Automatic Exchange of Financial Account Information Under the CRS, issued on 17 January 2017 by the Swiss Federal Tax Administration (the Tax Administration) – make up the foundations of CRS implementation in Switzerland.

FI duties

Swiss FIs are now under a legal obligation to undertake due diligence on their financial accounts and account holders, and to make annual reports to the Tax Administration on the value of those financial accounts and the identity of any account holders residing in another CRS-participating jurisdiction. Swiss FIs have until 1 January 2018 to review and gather all relevant information on their individual high-value accounts, and until 1 January 2019 to do the same for their individual low-value and entity accounts. The first reports will be sent by 30 June 2018. On receiving these reports, the Tax Administration will forward the information to the designated tax authority of the relevant participating jurisdiction, which shall be permitted to use it for its own tax-gathering activities and detection of tax evasion by its residents.

Although the system seems relatively straightforward, it becomes more complex once a Swiss FI attempts to determine what information must be communicated and to what extent. The AEIA’s criminal provisions – sanctions of up to CHF250,000 for any intentional violation by an FI of its due-diligence and reporting obligations – make the task daunting.

CRS classification

The CRS classifies entities into two broad categories: FIs, which have a reporting obligation towards their designated tax authority; and non-financial entities (NFEs), which do not have any reporting duty, but must disclose information about themselves and, depending on their specific setup, their ‘controlling persons’ (for passive NFEs) to the FIs holding their financial accounts. A given ‘type’ of entity, such as a trust, may be categorised as an FI, an active NFE or a passive NFE, depending on the nature of its activities, its type, the kind of assets it holds and how it is managed.1 Although classification under the CRS is not intuitive and must be determined on a case-by-case basis, it holds great meaning, as an entity’s obligations and its resulting liability exposure depend on it.

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