The revised Collective Investment Schemes Act (CISA) will presumably take effect in the first quarter of 2013. It also contains a revised Article pertaining to VAT, the effects of which are only gradually being recognised. They could lead to a further weakening of the Swiss financial centre.
Specifically, this pertains to Art. 21 Para. 2 Point 19 lit. f VATA, which is to be amended as follows:
|Previous wording of Art. 21 Para. 2 Point 19 lit. f VATA:||New wording of Art. 21 Para. 2 Point 19 lit. f VATA|
|…the distribution of units of and the management of collective investment schemes as per CISA by persons who…||…the distribution of units of collective investment schemes as per Art. 3 Para. 1 CISA [of 23 June 2006], dealings as per Art. 3 Para. 2 CISA and the management of collective investment schemes by persons who…|
The value-added tax treatment of distribution and management services for domestic collective investment schemes is not affected by this change in the Act. Those services will continue to be exempt from the tax. However, initial statements by the FTA have given rise to concern that something is about to change in terms of foreign collective investment schemes.
To date, foreign collective investment schemes distributed in Switzerland have only been subject to CISA (i.e. require formal permission) if they are distributed publicly (in other words, also to retail clients with no asset management contracts). Art. 2 Para. 1 lit. b nCISA now stipulates that all foreign collective investment schemes distributed in Switzerland are subject to the Act. Art. 3 Para. 1 nCISA – precisely to which the new wording of Art. 21 Para. 2 Point 19 lit. f VATA refers – regulates everything that qualifies as distribution, i.e. any means for distributing or advertising collective investment schemes under CISA. In future it is to be expected that, from a VAT point of view, the distribution of domestic and foreign collective investment schemes within Switzerland will be treated equally. This among other things because, with the broadened circle of non-qualified investors as defined in nCISA, additional distributors could ultimately face becoming subject to CISA, which in turn would mean that their distribution commissions equate to new VAT-exempt revenues.
Under existing law, the management services rendered for foreign collective investment schemes are not addressed by CISA and therefore not eligible for the VAT exemption. Those services fundamentally qualify as taxable but, based on the place-of-receipt principle, can be invoiced with 0% VAT and are entitled to input tax deduction.
Now, also the asset managers of foreign collective investment schemes will be compulsorily subject to nCISA and therefore require a licence from FINMA in order to perform their activities. The FTA is using this broader scope of applicability of CISA as an opportunity to include also management services rendered to foreign collective schemes in the tax exemption. . As a result, the asset managers will lose the right to deduct input tax on those services, which of course will lead to higher costs. The bottom line: Switzerland loses another location-specific advantage.
Until now, any comments on the effects nCISA will have on VAT have remained largely (or perhaps conveniently) unspoken. But: if one goal of the revision – namely the preservation of the Swiss financial centre’s competitive viability – is to be achieved, then conducive tax conditions should be part and parcel of the deal. Thus a tax exemption for the management of foreign collective investment schemes would be a clear step backwards.
The affected circles still have the opportunity to exert an influence on future practice. Drafts of the FTA’s new practice should become available in the first quarter of 2013.