Switzerland’s Regulatory Agenda
Have a glance at a few of the highlights on Switzerland’s regulatory agenda for the next couple of years.
The regulatory landscape is in constant movement and the work to strengthen tax transparency and the fight against financial crime is an ever-moving target. Here are a few topics on Switzerland’s regulatory agenda for the next couple of years that we will be monitoring with great interest.
Switch from a FATCA Model 2 to a Model 1 IGA
The current Intergovernmental Agreement (IGA) between the United States (US) and Switzerland on the implementation of FATCA entered into force on 2 June 2014, and is based on Model 2. This means that Swiss Foreign Financial Institutions (FFIs) report account details on US accounts directly to the Internal Revenue Service (IRS).
Negotiations to switch from a Model 2 to a reciprocal Model 1 IGA have been ongoing for quite some time, and in November 2023, the Swiss State Secretariat for Finance (SIF) announced that preparations for signing are underway.
The perhaps biggest practical change upon switching to a Model 1 IGA will be that Swiss FFIs no longer report directly to the IRS by 31 March each year, but instead to the Swiss Federal Tax Administration (FTA) by 30 June, as is currently the case for the Automatic Exchange of Information (AEoI) under the Common Reporting Standard (CRS).
The transitional measures will mean a massive amount of work for many FFIs – getting familiar with the new set of rules, reclassifying, redocumenting, de- and re-registering and so forth – but the switch is welcome and should prove beneficial long-term.
Crypto-Asset Reporting Framework
Switzerland has, along with some 50 other jurisdictions, undertaken to implement the Crypto-Asset Reporting Framework (CARF) and amendments to the CRS. The Federal Department of Finance (FDF) shall prepare a consultation draft for the implementation of the rules by end of June 2024.
With CARF, the AEoI is extended to cover crypto-assets (digital assets based on a distributed ledger or similar technology), which have been and still are largely outside of the tax transparency sphere. Briefly summarised, Reporting Crypto-Asset Service Providers (CASPs) will be required to identify and perform due diligence on its Crypto-Asset Users (Users) that hold Relevant Crypto-Assets and report on any Reportable Users.
The amendments to the CRS are mostly of clarifying and practically improving nature. Perhaps most notably for the trust and private wealth industry, the amended rules and reporting schema will facilitate the categorisation of different types of equity interest holders of a trust or equivalent, which is something that should help the persons subject to reporting and tax authorities alike.
Central Bank Digital Currencies, i.e. digital Fiat Currencies issued by a Central Bank, are not considered Relevant Crypto-Assets, and will fall into the extended scope of the CRS rather than CARF.
New Anti-Money Laundering measures
The Federal Council has proposed new anti-money laundering measures, including the introduction of a federal Beneficial Owner Register (BO Register) and extension of the Anti-Money Laundering (AML) due diligence rules to certain activities carried out by lawyers and advisors in line with the international standards of the Financial Action Task Force (FATF).
Companies and other legal entities will mandatorily have to register and disclose information about their beneficial owners to a central BO Register. The BO Register shall be maintained by the Federal Department of Justice and Police, and will be accessible to competent authorities and financial intermediaries as well as certain advisers and lawyers, however not to the public.
Further, AML due diligence obligations shall in the future apply to non-financial professions such as lawyers and notaries and other advisors in relation to advice in matters that carry an elevated risk of money laundering, such as for example real estate transactions and the establishment of companies, foundations and trusts. Any reasonable grounds for suspicion in relation to such activities will, to the extent not covered professional secrecy of lawyers and notaries, have to be reported to the Money Laundering Reporting Office (MROS), and compliance with the new obligations shall be supervised by a self-regulatory organisation (SRO) or the cantonal supervisory authority for lawyers, respectively.
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