Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Switzerland

Switzerland has implemented a legal framework which permits spontaneous exchange on rulings from 2018 onwards. Switzerland has met all the terms of reference (ToR) that can be met in the absence of exchange of information being permitted for the year in review and no recommendations are made.

The Swiss tax authorities can legally issue four types of rulings within the scope of the transparency framework.

Switzerland did not have the necessary domestic and international legal framework for spontaneous exchange of information for the year of review.1 As such, no exchanges were permitted to occur. The domestic legal framework for spontaneous exchange of information entered into force on 1 January 2017, together with the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011), the international legal framework permitting spontaneous exchange of information.2 In accordance with the legal framework, exchange of information on ruling commenced from 1 January 2018. This includes rulings issued since 1 January 2010, provided that they are in effect when the international legal framework becomes applicable on 1 January 2018. Switzerland has undertaken administrative and organisational preparations to be ready to exchange information pursuant to the new legal framework.

As Switzerland did not have the necessary domestic legal basis for spontaneous exchange of information on rulings for the year of review, no exchanges on rulings were permitted to occur. As no exchanges could be undertaken under Switzerland’s legal framework, no peer input was received in respect of the exchanges of information on rulings received from Switzerland.

1. The Action 5 Report (OECD, 2015) notes that jurisdictions which do not currently have the necessary legal framework in place for spontaneous exchange of information on rulings will need to put in place such a framework in order to comply with the obligations under Action 5, but that in such cases the timelines are subject to a country’s legal framework.

2. Tax Administrative Assistance Act (TAAA) and the Tax Administrative Assistance Ordinance (TAAO), which are underpinned by an explanatory document to the TAAO published by the Federal Department of Finance.

Introduction

1282.  This peer review covers Switzerland’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

1283.  The Swiss tax authorities can legally issue the following four types of rulings within the scope of the transparency framework: (i) rulings related to preferential regimes;1 (ii) cross-border unilateral APAs and any other cross-border unilateral tax ruling (such as an ATR) covering transfer pricing or the application of transfer pricing principles; (iii) permanent establishment rulings and (iv) related party conduit rulings. In Switzerland, rulings are issued by the cantonal and federal tax authorities.

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

1284.  For Switzerland, past rulings are any tax rulings within scope that are issued on or after 1 January 2010 until 31 December 2016, provided they were still in effect as at 1 January 2018 (see paragraph 9 f.).

1285.  In the prior year peer review report, it was determined that Switzerland’s undertakings to identify past rulings and all potential exchange jurisdictions were sufficient to meet the minimum standard. As the implementation in this regard remains unchanged it is determined that Switzerland’s implementation continues to meet the minimum standard.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

1286.  For Switzerland, future rulings are any tax rulings within scope that are issued on or after 1 January 2017, provided they are still in effect on or after 1 January 2018 (see paragraph 9 f.).

1287.  In the prior year peer review report, it was determined that Switzerland’s system to identify future rulings and all potential exchange jurisdictions was sufficient to meet the minimum standard. The implementation in this regard remains unchanged and the system to identify future rulings continues to meet the minimum standard.

Review and supervision mechanism (ToR I.4.3)

1288.  In the prior year peer review report, it was determined that Switzerland’s review and supervision mechanism was sufficient to meet the minimum standard. Switzerland’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Conclusion on section A

1289.  Switzerland has met all of the ToR and no recommendations are made.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

1290.  Switzerland has the necessary domestic legal basis to exchange information spontaneously from 1 January 2018. The domestic legal basis (Revisions of the Tax Assistance Administrative Act and the Tax Administrative Assistance Ordinance) entered into force on 1 January 2017 and allows for exchange of information as of 1 January 2018.

1291.  Switzerland’s international agreement permitting spontaneous exchange of information is the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”). The Convention entered into force on 1 January 2017. According to article 28 paragraph 6 of the Convention, administrative assistance shall have effect for taxable periods beginning on or after 1 January of the year following the one in which the Convention entered into force. Spontaneous exchange of information on rulings issued after 2010 is therefore allowed, provided they were still in effect on 1 January 2018.2

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

1292.  The prior year peer review report noted that Switzerland has put in place a process to exchange information on rulings in accordance with the form and timelines required by the transparency framework. As Switzerland has not yet started the exchange of information, this section could not be further assessed for the year in review.

Conclusion on section B

1293.  For the year in review, Switzerland did not have the necessary legal framework in place for exchanging information on rulings.3 The exchange of information on rulings in practice will be assessed in the subsequent report. Switzerland has put in place the administrative practices for the completion and exchange of templates on rulings and applied it to collect relevant rulings in view of an exchange in 2018. Switzerland has met all the ToR that can be met in the absence of a legal basis to conduct the exchange of information on rulings and no recommendations are made.

C. Statistics (ToR IV)

1294.  As there was no legal basis for exchange in the year of review, no statistical data can be reported.

D. Matters related to intellectual property regimes (ToR I.4.1.3)

1295.  In the prior year peer review report, it was determined that Switzerland’s implementation regarding matters related to intellectual property regimes was sufficient to meet the minimum standard. Switzerland’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

1296.  As Switzerland did not have the legal basis to exchange rulings in 2017, this section could not be further assessed. Switzerland’s matters related to IP regimes will be assessed in the subsequent report.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
	No recommendations are made.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Notes

← 1.  With respect to the following preferential regimes: 1) auxiliary company regime (previously referred to as domiciliary company regime, 2) mixed company regime, 3) commissionaire ruling regime, 4) holding company regime (cantonal level), 5) licence box (Canton of Nidwalden only).

← 2.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm.

← 3.  See note 1.