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Financial Transactions Taxes: Duties and liabilities of Swiss Asset Managers

One key challenge for the Swiss Asset Managers (CH AMs) that will continue developing is the emergence of financial transactional taxes (FTTs). Since the 2008 financial crisis, FTTs have been debated within the European Union (EU) and the OECD as a potential instrument to address financial market instabilities and as a source for tax revenue. Broadly speaking, FTTs are levied on the trade in financial instruments such as stocks, bonds, or derivatives. Depending on the asset type, the FTTs often have varying tax rates.

 

Benjamin de Zordi
Tax Partner, Asset Management, PwC AG                                      
Christelle Gervasoni 
Senior Tax Manager, Financial Services, PwC AG                         

 

Since some FTTs have extraterritorial application, CH AMs could be subject not only to Swiss FTTs reporting and payment obligations, but also to foreign FTTs.

 

Switzerland  

Switzerland levies a securities transfer tax (“STT”), on the onerous transfer of taxable securities, involving a Swiss securities dealer (“SSD”). 

SSDs are defined, among others, as any Swiss persons which are mainly dealing with securities on third party’s account or brokering such securities such as portfolio managers (intermediaries). Such notions of intermediaries and SSDs have been relatively recently further defined in court decisions. A CH AM should then fall into this definition.  Taxable securities include, but are not limited to equities, units in collective investment schemes and bonds.

STT is a formal tax with some exceptions applying, which are not always so easy to understand without a sufficient tax background. The ordinary tax rate of STT is 0.15% for securities issued by a Swiss tax resident and 0.3% for securities issued by a tax resident of a foreign country. It is levied by half, for each counterpart to the transaction. 

As a SSD, the AM will have to register as such with the Swiss Federal tax authorities, maintain a trade register, file returns to declare the transactions subject to STT and levy the STT. The SSD must determine the qualification of the securities, of the counterparts to the transaction and of the transaction itself to determine whether STT must be reported and levied, this for each transaction. Documenting correctly the transactions will be a key element for the SSD. Fulfilling correctly all these conditions can be challenging for a CH AM.

 

European Union 

In the EU, it is currently a hot topic. There are ongoing discussions about an introduction of an EU-wide FTT. The proposal of the EU Commission is to introduce a FTT among all Member States with a minimum 0.1 % tax rate for transactions in all types of financial instruments. 

Despite more than ten years of negotiations, no agreement has been reached yet on the introduction of the FTT at the EU level. Therefore, it was decided in the beginning of 2023 that the EU Commission will put forward a proposal for a FTT as a new EU own resource by June 2024 in view of its introduction by 1 January 2026. The essential features of an EU FTT are yet to be determined. 

Some EU countries as well as many other countries worldwide such as Hong Kong or Singapore have implemented directly in their legislations such taxes. See three examples below but the list is not exhaustive.

 

France

France was one of the pioneers to introduce such FTT in its legislation. It levies a FTT, normally at 0.3%, on the acquisition against consideration of shares in French companies with a market capitalization above €1bn, investment and voting rights certificates, as well as convertible bonds. 

The FTT is levied regardless of whether the transaction is executed inside or outside of France, i.e., has an extraterritorial application. 

The person liable is the provider of investment services which executed the purchase order for the securities or which negotiated on its own account, regardless of its place of establishment. If the acquisition of the securities is carried out without the intervention of such a service provider, the person liable for the tax is then the establishment providing the custody account-keeping function, regardless of its place of establishment.

Failure to report and pay the respective FTTs results in penalties.

 

Italy

Italy also levies a Stamp Duty normally at 0.2% on certain list of assets, including listed shares in Italian companies with a market capitalization above €500m and any unlisted shares, participating financial instruments, etc. 

Italy has a broad definition of accountable parties, which might include CH AMs if involved in trading of Italian securities. Depending on the transaction, CH AMs could be held liable for the declaration and for the payment of Duties. 

Accountable entities must maintain an electronic ‘register’ from which the data used to file the annual FTT return are sourced. The register may have to be communicated to the Italian tax authorities in case of tax audit but should not be filed with the annual return. 

Accountable entities should also register and obtain a Tax Identification Number (‘TIN’). Since 2021, the Italian tax authorities have introduced some important changes related to the settlement of FTTs online.

 

The United Kingdom 

The UK levies a similar Stamp Duty on stocks, marketable securities or interests in partnerships where the partnership assets include stock or marketable securities. It is also charged on instruments that transfer land. Stamp Duty is normally charged at 0.5%, taking into account that it doesn’t normally apply where the consideration for shares is £1,000 or less. The exemption is claimed by self-certifying.

In most Stamp Duty cases it is the purchaser who pays the tax as they cannot legally register their ownership of shares without evidence of payment. This means that CH AMs should be liable for the reporting of UK Stamp Duty only in case they are purchasing the shares on their own and become the legal owners of the shares. 

On 27 April 2023 the UK HM Revenue and Customs (HMRC) published a consultation on ‘Stamp Taxes on Shares modernisation’. It is widely accepted that the current Stamp taxes system is very outdated and HMRC have set out their proposals for how the Stamp Taxes on Shares framework should be modernised.

In conclusion, CH AMs should monitor very closely the FTTs developments as the current legal regimes might significantly change in the near future. Due to their extraterritorial application, especially the EU, FTT rules have an impact on the scope of CH AMs duties and liabilities. CH AMs should consult their banks, brokers and / or tax advisors for further insights.

 

 

Biography

Benjamin de Zordi is a tax partner based in Zurich and specialized in Asset Management. He has over 20 years of experience with a focus on the financial industry. He is specialized in advising investment funds, asset managers and banks. In particular, Benjamin leads PwC Switzerland’s Swiss Asset Management Tax practice and the Swiss Fund Tax Reporting team. He holds a degree in business administration (University of St. Gallen, HSG) and is also a Swiss certified tax expert. He is also part of working groups related to asset management area.

Christelle Gervasoni is a Senior tax manager based in Romandie. She is specialized in the financial industry and advises investment funds, asset managers and banks located in Romandie. She has over 20 years of experience in tax advisory and holds a Master in International and Swiss tax law (University of Lausanne).