Tax Newsletter Central Switzerland

Updates regarding BEPS 2.0

• OECD publishes outcome statement on Pillar 2 solution
  On 12 July 2023, the OECD published an outcome statement providing an overview of the status and timeline for the implementation of the two-pillar solution addressing the challenges of taxing taxing the digital economy. The timeline for the publication of a multilateral convention (MLC) for Amount A of the pillar one was postponed to the second half of 2023 (with the aim of bringing it into force in 2025). The outcome statement also states that the OECD will launch a second public consultation on Amount B of pillar one.
  While there is uncertainty regarding the first pillar, many countries have started implementing the second pillar.
• Publication of OECD documents
  On 17 July 2023, the OECD/G20 Inclusive Framework on BEPS (IF) published four key documents related to Pillar 1 and Pillar 2. The key documents include a public consultation on Amount B of Pillar 1 and, for Pillar 2, a second set of administrative guidance on the GloBE Model Rules, an updated version of the GloBE Information Return and a report and commentary on the operation of the Subject-to-Tax Rule (STTR). For more information, check out our blog.  

Developments EU

• Harmonization of withholding tax procedures: EU FASTER Directive
  On 19 June 2023, the European Commission published the draft FASTER (Faster and Safer Relief of Excess Withholding Taxes) Directive, which aims to promote investment in the Single Market by harmonizing withholding tax procedures across the EU. FASTER will introduce comprehensive anti-avoidance provisions and new obligations for both financial institutions and tax administrations. Once adopted by EU Member States, the proposal is expected to enter into force on 1 January 2027.
• CBAM reporting and implementing regulation
  The European Commission published a draft implementing regulation for the CBAM (Carbon Border Adjustment Mechanism) transition phase. The first report is expected at the end of January 2024.
• EU Foreign Subsidies Regulation (FSR)
  On 10 July 2023, the European Commission adopted an EU regulation setting out reporting procedures for non-EU subsidies that could distort the Single Market. The FSR will apply from 12 July 2023, when companies will have to report both mergers and acquisitions as well as participation in public tenders, provided they involve foreign financial contributions and meet the relevant reporting thresholds and do not fall within the scope of the exemption.

Double Tax Treaty - Developments

• Signing of the Protocol of Amendment to the DTT with Germany
  On 21 August 2023, Switzerland and Germany signed a Protocol of Amendment to the DTT. The core points of the Protocol of Amendment include the adaptation of the agreement to interim results of the BEPS project as well as adjustments in accordance with the current OECD Model Tax Convention. The Protocol of Amendment is scheduled to enter into force on 1 January 2025.
• Cross-border commuter agreement with Italy enters into force in 2024
  The agreement on the taxation of cross-border commuters and a protocol amending the double taxation agreement between Switzerland and Italy entered into force on 17 July 2023. The new provisions are applicable as of 1 January 2024.
• Mutual agreement with France
  The SIF announces that Switzerland and France have agreed on a common interpretation of the 10-day rule for business trips that are considered home offices within the meaning of the Mutual Agreement of 22 December 2022, which clarifies the concept of cross-border commuters.
• Supplementary agreement France: Income from home office
  On 27 June 2023, Switzerland signed a supplementary agreement to the DTT with France that contains new and permanent taxation rules for home office income. This supplementary agreement allows cross-border home office up to 40% of the working time per year - especially for cross-border commuters. It is part of the solution agreed at the end of 2022 regarding home office.

Updates regarding BEPS 2.0

• Global minimum tax accepted by the Swiss electorate
  With a majority of around 78%, Swiss voters approved the new constitutional provision for the implementation of the second pillar in a referendum on 18 June 2023. The legal framework provides that the Federal Council can introduce the second pillar by way of a temporary ordinance, which will have to be replaced within six years by a federal law passed by the Swiss parliament.
  For more information, check out our blog.
  
• FDF report on the implementation of the OECD minimum tax
  On 8 August 2023, the Federal Department of Finance published the first report on the expected effects of the implementation of the OECD minimum tax on the individual cantons and on the measures planned by the cantons. The report is based on a survey among the cantons with a cut-off date of 31 May 2023.
• Review of Participation Relief
  The FDF wants to subject the participation relief for corporate income tax to an overall evaluation. Due to the changed initial situation with the OECD minimum tax, the FDF believes it is important to wait with implementation. The participation relief in Switzerland differs from systems in other countries. The OECD also provides for a different system for the global minimum tax. This can lead to over- or under-taxation for companies affected by the minimum tax. The FDF therefore wants to review the participation relief as part of the legislation on the minimum tax.

Developments in Switzerland

• Loss offset period to be extended to 10 years
  According to the will of the parliament, the loss offset period for companies is to be extended from seven to ten years. This should facilitate recovery for companies affected by the Corona pandemic. The Federal Council has drafted the legal amendments for this and opened the consultation process at its meeting on 28 June 2023.
• The flexibilization of the taxation of life annuities will come into force in 2025
  In the case of life annuities, a share of 40% is currently taxed as a lump-sum income. In the current interest rate environment, this results in over taxation. The Federal Council therefore proposes to make the taxable income portion of life annuities more flexible. The law was approved in the final vote on 17 June 2022 and will enter into force on 1 January 2025.
• FTA updates form "Structure and record formats of withholding tax rates”
  The document "Structure and record formats of withholding tax rates for import into payroll accounting systems (ERP systems)" has been adapted in certain points. The new guidelines apply to the provision of withholding tax rates to be applied from 1 January 2024. The new withholding tax rate files for the 2024 tax year are expected to be published at the beginning of December 2023.
• Interest rates Direct federal tax as of 2024
  From 1 January 2024, an interest rate of 4.75 per cent will apply in the event of default and for refunds. The interest rate on voluntary advance payments is now 1.25 per cent.
• SFTA adapts circular on "Professional expense allowances and remuneration in kind 2024
  The SFTA has published the circular "Professional expenses lump sums and remuneration in kind 2024 / Compensation for the consequences of the cold progression in direct federal tax for the tax year 2024".
• Federal Council sets parameters for individual taxation
  At its meeting on 30 August 2023, the Federal Council defined the key parameters for introduction of individual taxation, which Parliament had requested as part of the legislative planning. This bill will also serve as an indirect counter-proposal to the popular initiative "for individual taxation independent of civil status (tax justice initiative)".

Current case law

Enclosed you will find a selection of the Swiss Federal Administrative Court (SFAC) and Swiss Federal Court (SFC) decisions, that may be of interest to you:

• SFC dated 20 April 2023: Transposition in the case of a management buy-out: Federal Supreme Court rejects economic assessment
• SFC dated 20 April 2023: Lack of collectivity in 1e pension plan: Concept of virtual collectivity
• SFC dated 15 February 2023: Permanent establishment cantons may tax hidden reserves on trademark rights according to their proportionate quota if such hidden reserves can be allocated to the permanent establishments. In its ruling, the Federal Supreme Court takes into account the OECD TP Guidelines.
• SFAC dated 4 September 2023: Refusal of WHT refund due to harmful forward obligation based on cross-currency swap contracts of the dividend recipient.
• SFAC dated 14 August 2023: Refusal of WHT refund: A natural person cannot invoke in her/his own favor the transparent treatment of her/his offshore companies by the foreign tax authorities.

VAT

• Increase of VAT rates as per 1st January 2024
  As of 1 January, 2024, the Swiss VAT rates will be increased. Starting with Q3 2023 VAT return (period 01.07.2023 – 30.09.2023) sales can be declared with the new VAT rates.
  Neither the date of invoicing nor the date of payment is decisive for the VAT rate to be applied, but rather the time at which the supply is rendered. In the case of periodic supplies (e.g., subscriptions), the period of the provision of the supply is decisive. Supplies rendered up to 31 December 2023 are subject to the previous VAT rates. From 1 January 2024 supplies are subject to the new VAT rates.
  
  The tax rates will be adjusted as shown below. An adjustment of the net tax rates will also be made accordingly.
  
  
  • Standard rate: Previous ( 7.7 %), Change (+ 0.4%), New rates (8.1 %)
  • Reduced rate: Previous (2.5 %), Change (+ 0.1 %), New rates (2.6 %)
  • Special accomodation rate: Previous (3.7 %), Change (+0.1 %),
    New rates (3.8 %)

Special considerations must be taken into account, among other things, if services are subject to both the previous and the new VAT rate due to the period of their provision, in the case of partial payments and invoices, in the case of advance payments and invoices, and also in the case of services subject to acquisition tax.

• Revision of the Customs Act
  Detailed consultations on the total revision of the Customs Act began on 29 August 2023. The Committee for Economic Affairs and Taxation of the National Council (WAK-N) has to deal with a series of applications up to and including Article 84 on the general provisions and the economic section of the BAZG-Vollzugsaufgabengesetz (BAZG-VG).
  
  Treatment in the First Council / National Council in the winter session of 2023 has not yet been confirmed (possibly not until the spring session of 2024). Due to the delays, the planned entry into force of the new Customs Act on 1 January 2024 is no longer possible; entry into force at the earliest at the beginning of or in the course of 2025 is now more likely.
• Digitisation of the Federal Office for Customs and Border Security (FOCBS)
  Passar is the FOCBS's new goods traffic system for the digital processing of customs procedures, which will cover all processes related to transit, export, import, special customs clearance and the collection of other duties by the end of 2026. Passar replaces the current customs clearance systems e-dec and NCTS as well as other customs applications. The changeover began in June 2023 and will affect international transit in a first step, exports from spring 2024 (parallel phase until June 2025), and imports from 2025. The changeover will involve a new registration of economic operators in the federal e-portal (onboarding).

Environment – Social – Government («ESG») levies

In the EU, we are currently witnessing significant developments in the ESG (Environmental, Social, Governance) tax landscape. New levies are constantly being introduced, both small and large, which require our attention. These include among other plastic packaging taxes, sugar taxes, and the extended producer responsibility. All of these topics fall within the realm of ESG and are becoming increasingly important.

Carbon Border Adjustment Mechanism (“CBAM”)

On 17 August 2023, the European Commission adopted the Implementing Regulation for the Carbon Border Adjustment Mechanism (CBAM). The approved Implementing Regulation and accompanying guidance:

• Confirms the reporting obligations for the CBAM transitional period, which commences on 1 October 2023. Furthermore, it confirms that the CBAM reporting requirements and methodology will provide some flexibility when it comes to the values used to calculate embedded emissions on imports during the transitional phase.
• Provides further guidance on the calculation of embedded emissions. Critically, the use of ‘default values’ will not be limited for the first three quarterly CBAM reports (i.e. until 31 July 2024). After this point, default values may only be used for up to 20% of embedded emissions for complex goods

The CBAM was announced as part of the European Commission’s ‘Fit for 55’ package.  This initiative aims to reduce net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. The CBAM is designed to contribute to this objective and prevent from a carbon leakage. Practically speaking, the CBAM will be a tax on the importation of carbon-intensive products from outside the European Union. In summary, the CBAM will likely affect businesses in three ways:

• It will increase the risk of non-compliance if affected businesses aren’t familiar with the, admittedly rather complex, process.
• It will increase the time (and associated costs) required to collect and to process data from suppliers.
• It will increase costs through the additional carbon price to be paid – as of 2026.

Consequently, if you are active in the cement, iron, steel, aluminium, fertiliser, electricity or hydrogen industries (or in the value chain of these products), you should begin to assess how CBAM will impact you. Whilst you may not have a direct reporting obligation, you should expect to receive information requests from those impacted.

EU proposal VAT in the Digital Age (“ViDA”)

On 8 December 2022 the European (EU) Commission released its “VAT in the Digital Age (ViDA)” package, which is a set of proposals for new measures aiming to tackle the challenges of the digitization of the economy and to create a more resilient system against VAT fraud.  The proposal deals with following main topics:

• Digital Reporting Requirements (“DRR”): to standardize the information required for electronic reporting and introducing mandatory e-invoicing for cross-border transactions.
  Planned effective dates are 1 Jan 2024 and 1 Jan 2028.
• Platform economy VAT rules update: to address the challenges of equal treatment, clarifying the place of supply rules and enhancing the role of the platforms in the collection of VAT when they facilitate the supply of short-term accommodation rental or passenger transport services, but also for the supply of goods in almost all cases.
  Planned effective date 1 Jan 2025
• Measures to avoiding multiple VAT registrations: by introducing Single VAT Registration as well as expanding the existing One-Stop Shops (OSS) and Import One-Stop Shop (IOSS) schemes (and other smaller changes).
  Planned effective date 1 Jan 2025

The ViDA initiative is an ambitious package that will result in significant changes and will have a major impact on systems and processes for a large number of businesses. However the proposals are yet to go through the EU’s legislative process and will require the unanimous approval of all EU Member States as well as implementation in national legislations. Therefore, it remains to be seen whether the implementation of all proposed measures will be possible within the planned timeframe. 
 

Pharma VAT Recovery for Rebates granted under KVV Art. 71a: A Smart Business Move for You

Pharmaceutical companies selling drugs listed on the Speciality List (SL) in Switzerland have the opportunity to gain a valuable VAT benefit that could significantly enhance their financial standing. The reason for this opportunity is a recent shift in the approach of health and/or disability insurers regarding the rebates required under Swiss law (KVV Article 71a).

Previously, these rebates were usually issued with VAT on the credit notes, but recently, many insurers have requested the credit notes to be issued without VAT, to avoid any VAT risk on their side.

This change implies that pharmaceutical companies may have inadvertently VAT on these rebates in the past that can be claimed back. The good news is that such overpaid VAT amounts can be reclaimed from the Swiss VAT authorities, provided that a VAT ruling confirming this option is in place. We've been instrumental in assisting numerous pharmaceutical clients in securing these rulings, enabling them to recoup substantial VAT sums spanning the past five years.

Introducing CTIS and Its Impact on Pharma Supply Chains in the European Union

The Clinical Trials Information System (CTIS) is a recently established database that plays a pivotal role in the newly implemented clinical trials regulation (CTR) in the European Union. CTIS serves as the central platform for the submission and evaluation of clinical trial data within the EU. Starting from its go-live date on January 31, 2023, the utilization of CTIS is mandatory for all new clinical trial applications in the EU under the new CTR. Furthermore, all existing trials previously approved under the repealed clinical trials directive are scheduled for transition to CTIS by the conclusion of the transition period in 2025.

One of the features of CTIS is its accessibility to the public, which enhances the transparency of clinical trials conducted in the EU. This transparency extends to a variety of aspects, including trial locations, participant and investigator arrangements, as well as the documentation of compliance with Good Manufacturing Practice (GMP) standards. This heightened transparency has possible implications for the supply chain of clinical trials, notably in the context of indirect taxation and the distribution of Investigative Medicinal Products (IMPs) from a pharma regulatory perspective. Failure to comply to the regulations of the EU/EEA can lead to supply chain disruptions and the recall of materials utilized in clinical trials.

Additionally, recent changes in the regulatory landscape pertaining to pharmaceuticals within different EU/EEA countries have introduced a potential critical business risk for non-EU/EEA pharmaceutical companies engaged in the manufacture, sale, and storage of finished drugs, active pharmaceutical ingredients (API), and investigational medicinal products (IMPs) destined for Clinical Trials in the EU.

For instance, certain EU countries, including Germany, Sweden, Denmark, Austria, Cyprus, Belgium, the Netherlands, and others, have enacted or revised legislation that necessitates non-EU/EEA pharmaceutical companies to possess an EU/EEA-based license for the importation or distribution of their products within the EU. Companies outside the EU/EEA will not be granted such licenses. Consequently, pharmaceutical companies based in non-EU/EEA regions, such as Switzerland, may face a supply chain disruption in the European Union as a result of these regulatory developments. PwC has implemented and pressure tested several solutions in that regard that we would be happy to discuss with you.