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22 June 2017 / article

Why CRS matters to Swiss asset and investment managers

The Common Reporting Standard (CRS) for Automatic Exchange of Financial Account Information entered into force in Switzerland this year, meaning that the first automatic exchange of information will occur in 2018 regarding 2017 data. This is why CRS matters to you as a Swiss asset and investment manager.

Why CRS matters to Swiss asset and investment managers

Financial institutions are affected by the greater emphasis on transparency in tax matters from governments worldwide. Under the US Foreign Account Tax Compliance Act (FATCA), financial institutions must already disclose information of overseas assets held by US citizens to the US Government. The CRS, introduced by the Organisation for Economic Co-operation and Development (OECD), is intended to supplement and expand existing exchange of information arrangements (such as those in place under double tax treaties) and places disclosure obligations on banks. To date, more than 50 jurisdictions, including the European Union, have committed to automatic exchange of information with Switzerland.   

The CRS requires, among others:

  • Financial institutions, such as Swiss banks, custodians, certain insurance companies and investment entities to report
  • Financial information, such as interest, dividends, income from certain insurance contracts, account balances and sales proceeds from financial assets, in relation to
  • Reportable accounts held by individuals and entities, including foundations and trusts.

The CRS also contains detailed due diligence procedures to be followed by Swiss reporting financial institutions in order to identify reportable accounts. If an account is held by a so-called passive non-financial entity (NFE), the Swiss reporting financial institution faces an additional due diligence obligation and is required to identify the controlling persons of such passive NFE.

Process of Common Reporting Standard (CRS)

From a Swiss tax perspective, the CRS raises a number of questions:

Why is CRS relevant for Swiss investment/asset managers?

The definition of investment entities is very broad. Many parties within the Swiss asset and investment management industry may qualify as a financial institution (FI) and, hence, fall within the scope of CRS, irrespective of the asset class concerned.

What about Swiss investment funds?

Swiss investment funds are in principle reporting financial institutions that should report on reportable persons. The interests in a fund are ‘reportable accounts’. However, in terms of the Collective Schemes Act, Swiss collective investment schemes (contractual investment funds, SICAV, SICAF, LPs) are non-reporting financial institutions, provided the interests in these funds are solely held by non-reportable persons (e.g., an investment fund held by Swiss resident individuals, pension funds and other similar funds). Nevertheless, these ‘exempt’ financial institutions have a reporting obligation as far as they are held by passive non-financial entities with foreign resident controlling persons as investors.

What if I do not meet the CRS obligations?

In Switzerland, a reporting financial institution in breach of its CRS obligations may be subject to a financial penalty of up to CHF 250,000. Further, a false self-certification or any false amendment of such certification for a Swiss reporting financial institution may be subject to a fine of up to CHF 10,000.

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